Trends in Assets and Liabilities of Commercial Banks in the USA

Trends in Assets and Liabilities of Commercial Banks in the USA

To big to fail means too interconnected to fail.
As the balance sheets of banks have expanded so has their number of counterparties on both sides of balance sheets.

The US commercial banks have have expanded their balance sheets.

On assets side, the loans portfolio has expanded.

Low Interest Rates and Banks’ Profitability – Update October 2020

On liabilities side, the deposits and borrowings have increased.

US Federal Reserve publishes H8 report on Assets and Liabilities of the US commercial banks. Detailed information on aggregate data presented in this post can be obtained from it.

https://www.federalreserve.gov/releases/h8/h8notes.htm

On liabilities side, the borrowings from wholesale money markets and shadow banking contributed to systemic risk during 2008 financial crisis. Please see my posts on this subject.

Funding Strategies of Banks

Shadow Banking

There were also capital flows in US markets from foreign banks and other markets.

Low Interest Rates and International Capital Flows

On liabilities side, because of increased borrowings from short term markets, the financial interconnections have also increased resulting in systemic risk and financial contagion.

On assets side, because of increased volumes of loan portfolios, the systemic risk and chances for financial contagion have increased.

Balance Sheets, Financial Interconnectedness, and Financial Stability – G20 Data Gaps Initiative

Contagion in Financial (Balance sheets) Networks

For analytical framework, accounting approach (Post Keynesian Economics) is one of the option.

Balance Sheet Economics – Financial Input-Output Analysis (using Asset Liability Matrices) – Update March 2018

Foundations of Balance Sheet Economics

Economics of Money, Credit and Debt

Morris Copeland and Flow of Funds accounts

Stock-Flow Consistent Modeling

Key Terms

  • Money View
  • Money Flows
  • Stocks and Flows
  • System Dynamics
  • Business Dynamics
  • Business Strategy
  • Asset Liability Management ALM
  • Balance Sheet Economics
  • Monetary Policy
  • Interest Rates
  • Credit
  • Debt
  • Money
  • Balance Sheet Expansion
  • Systemic Risk
  • Interconnectivity
  • Loan Portfolio
  • To big to fail
  • Networks
  • Funding Strategy
  • Market Liquidity
  • Funding Liquidity
  • Deposits
  • Interest Income
  • Non Interest Income
  • Borrowings
  • Wholesale Money Markets
  • Shadow Banking
  • International Capital Flows
  • Round Tripping
  • Global Liquidity
  • Eurodollar Market
  • Money Market Mutual Funds
  • Quadruple Accounting
  • Morris Copeland
  • Hyman Minsky
  • Wynn Godley
  • Perry Mehrling

Image Source: Liberty Street Economics 2017

AVERAGE NET INTEREST MARGIN OF BANKS IN THE UNITED STATES FROM 1995 TO 2019
Image Source: Statista

NET INTEREST MARGIN FOR ALL U.S. BANKS (USNIM)
Image Source: FRED

Total Assets, All Commercial Banks (TLAACBW027SBOG)
Image Source: FRED

Total Liabilities, All Commercial Banks (TLBACBW027NBOG)
Image Source: FRED

DEPOSITS, ALL COMMERCIAL BANKS (DPSACBW027SBOG)
Image Source: FRED

My Related Posts

Balance Sheet Economics – Financial Input-Output Analysis (using Asset Liability Matrices) – Update March 2018

Foundations of Balance Sheet Economics

Balance Sheets, Financial Interconnectedness, and Financial Stability – G20 Data Gaps Initiative

Funding Strategies of Banks

Economics of Money, Credit and Debt

Low Interest Rates and International Capital Flows

Low Interest Rates and Banks’ Profitability – Update October 2020

Morris Copeland and Flow of Funds accounts

Key Sources of Research

Deposits, All Commercial Banks (DPSACBW027SBOG)

https://fred.stlouisfed.org/series/DPSACBW027SBOG

Total Liabilities, All Commercial Banks (TLBACBW027NBOG)

https://fred.stlouisfed.org/series/TLBACBW027NBOG

TOTAL ASSETS, ALL COMMERCIAL BANKS (TLAACBW027SBOG)

https://fred.stlouisfed.org/series/TLAACBW027SBOG

Between deluge and drought:
The future of US bank liquidity and funding

Rebalancing the balance sheet during turbulent times

McKinsey

2013

https://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/Risk/Working%20papers/48_Future%20of%20US%20funding.ashx

Assets and Liabilities of Commercial Banks in the United States – H.8

https://www.federalreserve.gov/releases/h8/h8notes.htm

The geography of dollar funding of non-US banks1

The Future of FX Markets – Update October 2019

The Future of FX Markets – Update October 2019

 

This is the biggest financial market trading currencies worth USD 6.6 trillion every day

There are two segments of the FX market

  • Spot Trading
  • FX Swaps, Options, and Derivatives Market

Spot trading market is OTC.

FX Swaps, Options, and Derivatives market is changing rapidly.

There two main features of these changes.

  • Mergers and Acquisitions in Trading platforms
  • Move of OTC FX trading to exchanges

I have tried to highlight many of these changes below.

Mergers and Acquisitions  in Trading Platforms

  • 2012 Reuters acquires FX ALL
  • 2014 ICAP combines EBS and BrokerTec
  • 2015 BATS global matkets acquires Hotspot FX
  • 2015 360T was bought by Deutsche Börse
  • 2017 CBOE Global Matkets acquires Bats Global Markets
  • 2018 CME Group acquires NEX
  • 2018 360t acquires Gain GTX

 

Leading electronic FX players:

  • CME,
  • EBS,
  • Reuters,
  • FXall,
  • FX Connext/Currenex,
  • Hotspot FXi,
  • LavaFX,
  • 360T
  • MilanFX, and
  • FXMarketSpace.

 

https://www.fnlondon.com/articles/best-foreign-exchange-trading-platform-the-nominees-20170329

Best Foreign Exchange Trading Platform: The Nominees

The 2017 winners will be announced at a gala event on May 25 in London at the V&A Museum

By Joel Clark

Updated: April 3, 2017 4:14 p.m. GMT

The 2017 winners will be announced at a gala event on May 25 in London at the V&A Museum.

Here are the nominees for: Best Foreign Exchange Trading Platform

360T
360T has been a reliable FX platform for institutional asset managers and corporates since inception in 2000, but its acquisition by Deutsche Börse in 2015 has given it increased firepower. With offices in Frankfurt, New York, Singapore, India and Dubai, the platform has 1,600 users globally and sources liquidity from 200 providers. The business is managed by long-time chief executive Carlo Kölzer, now also Deutsche Börse’s head of FX. It made several senior hires in 2016 to strengthen its sales effort in the US and Nordics. Most recently, industry veteran Simon Jones joined as chief growth officer and board member.

EBS BrokerTec
Part of Michael Spencer’s NEX Group, EBS’s average daily volume in 2016 was $85.8 billion, down nearly 10% year-on-year, but it bounced to $93.2 billion in January 2017. The pace of change may have slowed after chief executive Gil Mandelzis left in 2016, but EBS remains the market’s primary trading platform for major currencies. Under new CEO Seth Johnson, it introduced EBS Live Ultra, a faster data feed that updates price at intervals of either 100 milliseconds or 20 milliseconds. An upgrade in February offers a five millisecond feed, reducing reliance on the controversial practice of “last look”.

FastMatch
FastMatch, which was founded in 2012, aims to provide the fastest access to reliable FX liquidity using the same technology that underpins Credit Suisse’s Crossfinder matching engine. Average daily volume reached $12.7 billion in 2016, up from $8.4 billion in 2015. FastMatch traded $39.8 billion on June 24 and $38.0 billion on November 9, following the Brexit vote and US elections respectively, putting it on a par with established platforms that often see a spike in volume at times of market stress. The platform made its proprietary algorithmic and transaction cost analysis services available to all subscribers last year.

FX Connect
The State Street owned business has existed since 1996 and sources liquidity from more than 60 firms, including both top-tier banks and regional specialists. Of the largest 50 global asset management firms, State Street estimates that 47 use FX Connect. The platform saw a peak day on June 30, 2016, in the aftermath of the Brexit vote, when FX trading volumes exceeded $400 billion, with more than 47,000 transactions processed. FX Connect supports a range of execution methods, including relationship-based request-for-quote, request-for-stream, voice trading and algo execution services.

FXSpotStream
Led by chief executive Alan Schwarz, bank-owned FXSpotStream has become an enduring presence in the rapidly changing FX market. With an average daily volume of $18.2 billion in 2016, and significant year-on-year growth reported in seven out of 12 months, the platform is attracting a growing pool of liquidity. FXSpotStream does not charge brokerage fees to either clients or liquidity providers. With liquidity provided by 12 global banks – double the number it had had when it started out in 2011 – the business now has offices in London, New York and Tokyo.

Hotspot
Turnover on institutional FX platform Hotspot has remained resilient in the past year, with an average daily volume fluctuating between $29.4 billion in the first quarter of 2016, $25.7 billion in Q3 and $26.7 billion in Q4. Since its acquisition by Bats Global Markets in 2015, Hotspot has launched a UK matching engine, developed trading in outright deliverable forwards and launched Hotspot Link, which allows clients to design their own relationship-based liquidity pools. The platform grew its market share from 11.5% to 12.5% last year, according to Bats. Hotspot recently hired Matt Vickerman from Sun Trading and Rahul Bowry from Markit.

JP Morgan Markets
While some of its competitors have pulled back, JP Morgan has continued to invest heavily in its electronic platform and has achieved significant growth in activity on eXecute, the FX and commodities trading platform on JP Morgan Markets. By December 2016, the average number of daily users trading on eXecute had increased 43% year-on-year. Mobile usage had increased by 23% year-on-year, while the biggest trade on a mobile device stands at $100 million. JP Morgan has set aside $100 million to further develop its electronic offerings this year.

Thomson Reuters
Thomson Reuters’ FX platforms support a combined average daily trading volume of $350 billion, representing a substantial chunk of global market turnover. FXall, the dealer-to-client platform acquired by Thomson Reuters in 2012, has 1,700 institutional clients and 160 market makers. The company’s interbank platform, Thomson Reuters Matching, is a key trading venue for commonwealth currencies, and average daily spot volume across venues averaged $100 billion in 2016. Thomson Reuters introduced a new high-speed data feed in 2016 to deliver faster price updates and is partnering with analytics provider BestX to deliver independent trade analysis to clients.

For queries and general information regarding our gala event, please contact: awards@fnlondon.com

 

 

https://www.fnlondon.com/articles/best-foreign-exchange-trading-platform-2018-the-nominees-20180327

Best Foreign Exchange Trading Platform 2018: The Nominees

The winners of FN’s Trading and Technology Awards will be announced at the V&A Museum in London on May 15

Our awards are independent and fee-free. The Financial News editorial team compiles a shortlist of five nominees in each category following extensive research, taking soundings from industry contacts, and reviewing data and industry information.

The winners will be announced at the 16th annual awards gala dinner to be held at the V&A Museum in London on Tuesday, May 15.

Here are the nominees for: BEST FOREIGN EXCHANGE TRADING PLATFORM

Cboe FX
In spite of multiple changes of ownership over the past three years – from KCG to Bats Global Markets to Cboe – the platform formerly known as Hotspot has gone from strength to strength, with an average daily volume of $29.5bn in 2017, up nearly 10% year-on-year. In the fourth quarter, its market share averaged 14.9%, up from 12% in 2016. Given the fragmentation of liquidity, that is a sizeable chunk of the global FX market. In May 2017, Hotspot launched outright deliverable forwards on the platform while non-deliverable forwards were launched on Cboe SEF, the exchange’s registered swap execution facility, in December. The Hotspot business has now been rebranded as Cboe FX and is led by Bryan Harkins, Cboe’s head of US equities and global FX, while Jon Weinberg was hired from UBS last year as head of FX liquidity analysis.

Currenex
Ten years after buying Currenex in a landmark deal for the sector, State Street has continued to invest in the platform and it remains a leading liquidity pool in the FX market. In readiness for the EU’s revised trading rulebook under the Markets in Financial Instruments Directive, State Street last year launched the Currenex Multilateral Trading Facility to enable clients to use a disclosed request-for-quote model for FX spot, swaps, forwards and non-deliverable forwards. The platform’s trading volume are not disclosed, but Currenex remains a significant pool of FX liquidity. It is supported by a range of market data services, including streaming tick data on 40 currency pairs as well as well as a 100-millisecond snapshot of aggregated top of book price data. Last year, State Street hired James Reilly from Cantor Fitzgerald as global head of Currenex.

FastMatch
Amidst a spate of FX platform launches in recent years, FastMatch has emerged as one of the most successful, achieving an average daily volume of $18.4bn in 2017, up from $12.7bn in 2016. Average daily volumes spiked to a record of $22.5bn in May 2017, putting FastMatch firmly into competition with more entrenched players. In August 2017, exchange operator Euronext acquired the platform as a means of expanding into the FX market, which has in turn allowed FastMatch to push into the real money space in Europe. Additional highlights of 2017 included the opening of a sales office in Connecticut to complement its offices in New York, London and Moscow, and the launch of FX Tape, a market data service intended to act as a central reference point for transacted prices in spot FX.

NEX Markets
NEX Markets, previously EBS BrokerTec before Icap sold its voice broking unit and rebranded as NEX Group, recorded average daily FX volumes of $82.6bn last year. This may be a far cry from its heyday in 2008 when EBS hit an average of $214bn, but the FX market has changed since then and liquidity is now far more fragmented. With 2,800 customers in 50 countries, EBS remains the benchmark in major currency pairs such as EUR/USD and USD/JPY. The EBS Live Ultra data feed was enhanced last year to deliver spot FX data at five-millisecond intervals in response to client demand, while NEX Quant Analytics, a newly launched service that allows clients to analyse their performance and conduct regular reviews has proven particularly popular. EBS revenue for the half year ending September 30 2017 was £75m, up 12% year-on-year, highlighting the success of its diversified product offering.

Thomson Reuters
This year got off to a flying start, with trading volume across the Thomson Reuters Matching and FXall platforms reaching record highs in January 2018, suggesting not only that FX volatility had picked up, but also that diligent preparations for Mifid II had paid off. Average daily volume for all products reached $432bn, including $107bn for spot only – a level not surpassed since June 2016. Enhancements were completed in July 2017 to allow European clients to continue using the platforms for FX products under Mifid II and further changes were made to the company’s multilateral trading facility in December to support FX derivatives. In January, Thomson Reuters hired Jill Sigelbaum from NEX Traiana to head FXall, the ever popular institutional platform that it acquired in 2012.

Methodology
Financial News’s awards are independent and fee-free. Nominees in each category are voted on by a distinguished, independent panel of industry practitioners who cast their vote electronically. Each judge awards a score out of five to each nominee. The results are then vetted by FN editors for conflicts of interest. The highest adjusted average score out of five is the winner.

For all editorial inquiries please contact, Financial News projects editor Juliette Pearse at juliette.pearse@dowjones.com.

If you are interested in sponsorship opportunities or would like to book a table at the awards dinner on May 15th please contact: awards@fnlondon.com.

 

BATS increases its institutional platform portfolio, first Hotspot FX, now ETF.com

BATS increases its institutional platform portfolio

Just who is forging ahead in the very competitive institutional ECN sector? It is a very close battle of the…

BATS increases its institutional platform portfolio

Just who is forging ahead in the very competitive institutional ECN sector? It is a very close battle of the titans….

Yesterday, exchange operator BATS Global Markets announced it was buying ETF.com, without disclosing the financial terms of the transaction, in a deal which is expected to close in April 1st.

The ETF.com website which generated 875,572 page views and attracted 291,191 unique visitors in February 2016 will become an independent media subsidiary of BATS Global Markets.

David Lichtblau, CEO of ETF.com, will remain in that role and report directly to Bats Executive Vice President and Head of U.S. Markets Bryan Harkins.”, said the press release, underscoring “our commitment to the ETF industry and our focus on providing unique, value-added content for issuers, brokers, financial advisors, market professionals and investors.”

Bats has been expanding its ETF business, doubling the number of ETFs listed on the US market to 56 as the Kansas-based firm offered to pay ETF providers as much as $400,000 to list on its exchange, since 2015.

On Monday, the company announced it would provide Money.com with Bats One Feed, a market data product that handled 26.2% of all ETF trading in February 2016.

In 2015, BATS Global Markets, Inc. Class A Common Stock (BATS:BATS) decided to expand into the foreign exchange market by buying currency-trading venue Hotspot FX from KCG Holdings Inc. in a $365 million deal in cash and additional payments under a tax sharing arrangement of $63 million, apparently valuing the company 14 times the EBITDA in 2014. HospotFX has a network of more than 30 prime brokers and an average daily volume over $30,000 billion in 2016.

Multi-asset institutional platforms have been dominated by EBS (ICAP) and Thomson Reuters who compete at almost level pegging volume wise for 3 years.

Thomson Reuters bought FXall for $625 million in 2012, having published its average daily spot volume at $111 billion in a total volume of $356 million in February. At the time, FXall CEO Phil Weisberg became Global Head of eFX for Thomson Reuters, a position he continues to hold today.

Electronic Broking Services (EBS) which is the institutional ECN division of British interdealer broker ICAP Plc (LON:IAP) and is one of the largest dealing platforms, continues to hold its level pegging with FXall on a monthly basis, with average daily volumes in February 2016 coming in at $102 billion, and daily average of $107 billion in 2015, down from $274 million in 2008.

ICAP’s decision to bring EBS under the same roof in late 2014, combining its EBS foreign exchange and BrokerTec fixed income electronic trading platforms into one business unit, might have been the force behind Bats buying Hotspot FX, in a business environment where mergers and acquisitions are in fashion. Consolidation is the new big thing among institutional giants, now the other “big four”: Thomson Reuters, ICAP, BATS and KCG.

No.2 US exchange operator by volume, BATS expanded beyond equities and into foreign exchange and ETFs, aggressively trying to win market share. After a failed attempt to file an IPO in 2012, due to a glitch in the company’s trading systems, BATS is planning to file one in 2016, valuing the firm at $2 billion despite equity’s valuation at $1.5 billion.

This acquisition, when looking at the closely-contended institutional ECN sector, is a case of BATS Global Markets sharpening its bow as the battle for supremacy in this particular sector continues not only to be a four horse race, but a very marginal one at that.

Photograph: Time Square, New York. Copyright FinanceFeeds

#BATS, #etf.com, #hotspotfx, #institutional, #platform

 

Clearing of FX

  • CME Group
  • LCH
  • Eurex Group

 

 

https://www.euromoney.com/article/b12kp3zljw20cj/otc-fx-trading-becomes-exchange-like

OTC FX trading becomes ‘exchange-like’

Exchanges and the over-the-counter (OTC) market might have moved a little closer in recent years, but it is far from inevitable that demand for greater trading clarity will push a sizeable chunk of the market away from OTC.

The acquisition of trading platforms Hotspot and 360T by Bats Global Markets and Deutsche Börse respectively last year were bold statements of intent by exchange operators to grab a larger chunk of the trillions of dollars traded in FX every day.

However, while consolidation in the venues supporting FX trading can be expected to result in exchanges becoming more involved in the FX space, any actual market structure change is likely to take a long time to materialize, according to FXSpotStream CEO Alan Schwarz.

“The FX market continues to do a good job of addressing regulatory requirements and meeting the demands of market participants,” he says.

“We have seen a shift in the FX market looking to trade more on a disclosed basis. Our business has continued to see year-on-year growth because there is a move taking place from exchange-like anonymous trading to bilateral, fully disclosed trading between counterparties.

“Unlike trading on an exchange, the relationship via FXSpotStream is transparent and trading with the liquidity providing banks is on a fully disclosed basis.”

Nuances

Kevin McPartland, head of market structure and technology research at Greenwich Associates, believes that discussion of migration from OTC to exchange fails to take account of some of the nuances of the FX market and that the future lies in venues that support multiple trading models.

“There are a host of non-exchange electronic trading venues that allow clients to trade with each other in a variety of ways,” he says.

Kevin_McPartland-160x186
 

On the question of whether there is a discernible shift towards fully disclosed trading, McPartland refers to both central limit order book (CLOB) and request-for-quote (RFQ) having their merits.

Despite observations made by the likes of TeraExchange – that order book platforms offer a democratic marketplace through transparent, firm and executable prices – corporates have remained reluctant to abandon the RFQ model.

The key question for CLOB platform providers continues to be not why market participants have migrated to alternative models but rather when they will be in a position to win new business for products that are most suited for order books, such as the benchmarks and plain vanilla products.

“RGQ offers liquidity on demand and identification of counterparties, whereas CLOB is faster and its anonymity can be helpful,” says McPartland.

“But we are now seeing demand for a solution that provides the best of both worlds by enabling trading in an order book format while maintaining a bilateral relationship with counterparties.”

Regulation

According to James Sinclair, CEO of MarketFactory, options and other derivativesare moving closer to an exchange model due to the direct effects of regulation and the increased costs of compliance in OTC markets.

He refers to CME FX options as an example, noting they are effectively options on futures.

“However, the situation in the spot market is more complicated – some aspects are becoming closer to an exchange, others are moving further away,” he says. “FX has its own market structure that is hard to fit into the OTC/exchange paradigm.”

James Sinclair 2-160x186
 

One of the fundamental reasons why the market does not become centrally cleared, says Sinclair, is that a cleared model carries the cost of insurance against both settlement and market risk.

“CLS insures you against settlement risk but not the market risk,” he adds. “Counterparts still find it cheaper to self-insure against market risk in case of a counterparty default than to pay the extra cost of a fully cleared solution.”

A senior platform source observes that growth in exchange-traded products has largely come from futures traders who have looked for diversification and added FX as another asset class.

“Very little business has moved from OTC – some banks have added exchanges as additional liquidity sources to cover risk, but that is really the only business that has crossed the divide,” the source says.

OTC has become more exchange-like in that the largest banks have continued to extend their internalization of flow, so each now runs an order book trading structure internally.

However, our source also points out that the tightening of credit has reduced the number of prime brokers in FX and costs have risen “so the nearest thing that the FX OTC market has to centralized clearing has actually reduced its volume and capacity”, he concludes.

 

 

 

https://www.reuters.com/article/markets-forex-regulation/pressure-builds-to-move-more-fx-trading-onto-exchanges-idUSL5N0VJ1VU20150216

Pressure builds to move more FX trading onto exchanges

LONDON, Feb 16 (Reuters) – International regulators struggling to rein in the $5 trillion-a-day global foreign exchange market are finally finding some support from asset managers warming to the idea of moving more trading onto exchanges.

The juggernaut forex market operates 24 hours a day across all time zones, but unlike with shares or commodities, trading is not centralised, potentially leaving space for malpractices.

This has gone largely unremarked for years. But a global investigation into market-rigging, allied to post-2008 regulation which has raised trading costs, has prompted more fund managers to ask if they are getting a fair deal from banks.

Advocates say putting forex trading on to exchanges would increase transparency, limit the scope for manipulation and benefit consumers. That would all come at a cost that now looks less of an issue than it did even two years ago.

“We are talking to people who are planning to shift 10-20 percent of their portfolios to some form of exchange-based or cleared trading if only to see how it goes,” said Peter Jerrom, who has launched a new broking operation matching orders for certain types of derivatives at London-based Sigma Broking.

“There is a shift that is a reflection of how much people have become tired of a variety of issues with the banks.”

BATS Global Markets’ purchase of FX trading platform Hotspot last month and moves by NASDAQ and Eurex into the sector, as well as the growing role of commodities and futures exchange CME Group in FX dealing suggest the move is gathering momentum.

Straightforward spot trading, worth roughly $2 trillion a day, will almost certainly continue to be done ‘over the counter’, with participants dealing directly with one another by phone or electronically.

But the growing costs of trading derivatives and options means anything from 20 to 60 percent of the market will be up for grabs in the next few years.

“All of the big exchanges are looking at this space now,” said David Mercer, chief executive officer of LMAX, a “multilateral trading facility” (MTF), to all intents and purposes the world’s only regulated currency trading exchange.

The head of business development with another major exchange added: “It is clear to us that our clients want trading on exchanges. But they do not want all trading on exchanges.”

DON’T BANK ON IT

Alfred Schorno, managing director of FX trading platform 360 Trading Networks said the critical issue was increasing transparency rather than necessarily moving to exchanges.

Calls for clearer structures reached a crescendo last November, when a year-long global investigation into allegations of collusion and rigging culminated in multi-billion dollar fines for six of the world’s biggest banks.

The threat of further fines for the banks from the European Union remains, while the U.S. Department of Justice and Britain’s Serious Fraud Office are still pursuing criminal investigations.

One issue is that forex dealing is concentrated in relatively few hands, with just five banks accounting for more than half of all the trade. Understandably, they are reluctant to loosen that grip.

“The big platforms have a difficult choice to make. Faced with more regulation, if they favoured a move to exchanges, they might well be the biggest players – or at least from a manager’s point of view might be bought well by one of them,” a senior industry source said.

WTO warns of global trade slowdown as indicator hits 9-year low

“But the banks would go mad if they said that publicly so they have to keep quiet,” he said.

Britain’s Conservative-led coalition government has pushed the bigger issues of the structure of the FX market back until after May’s general election.

But with some 40 percent of global currency trading flowing through London every day, the Bank of England’s Fair and Effective Market Review recommendations, not expected out until June, will be an important sign of things to come.

The industry contact panel for the review is, notably, chaired by the head of one of the world’s biggest asset managers, Allianz IG’s Elizabeth Corley. She declined to comment for this article.

ROUBLE RUCTIONS, FRANC FALLOUT

One driver for the move to more regulation is the market’s sheer size. It is by far the world’s largest single financial market, backed by central bank balance sheets that have swollen by some $10 trillion since the 2007-08 crisis and global foreign exchange reserves that now stand at $12 trillion.

Switzerland’s shock removal of its cap on the Swiss franc on Jan. 15 helped drive a record 2.26 million transactions, worth $9.2 trillion that day. On Dec. 17, as Russia’s rouble crumbled along with oil prices, volumes hit a record $10.67 trillion.

While various financial centres have developed voluntary codes of conduct for FX trading, they are not legally binding. In FX, unlike on the stock market, short-selling or betting on a fall in the price of an asset is virtually unrestricted.

Spot trading is hardly regulated at all. Traders dealing tens of billions of dollars a day are not required to be on the UK Financial Conduct Authority’s register of approved persons.

But that leaves some $3 trillion of FX options, swaps and derivatives trading, which regulators have moved to push towards formal clearing. (Editing by Hugh Lawson)

 

From https://www.dummies.com/education/finance/international-finance/an-overview-of-foreign-exchange-derivatives/

An Overview of Foreign Exchange Derivatives

By Ayse Evrensel

In international finance, derivative instruments imply contracts based on which you can purchase or sell currency at a future date. The three major types of foreign exchange (FX) derivatives: forward contracts, futures contracts, and options. They have important differences, which changes their attractiveness to a specific FX market participant.

FX derivatives are contracts to buy or sell foreign currencies at a future date. The table summarizes the relevant characteristics of three types of FX derivatives: forward contracts, futures contracts, and options. Because the types of FX derivatives closely correspond to the identity of the FX market participant, the table is based on the derivative type-market participant relationship.

An Overview of the Relevant FX Derivatives
Forward Contracts Future Contracts Options
Standardized regarding the amount of currency No Yes Yes
Obligation to engage in the transaction on the specified
day
Yes Yes No, but premium must be paid
Traded No CME Group GLOBEX
OTC
CME Group
GLOBEX
ISE
OTC
Useful for MNCs Yes Yes Yes
Useful for speculators No Yes Yes

CME Group: the leading derivative exchange formed by the (2007) merger of the Chicago Mercantile Exchange (CME) and Chicago Board Options Exchange (CBOT); GLOBEX: an international, automated trading platform for futures and options at CME; ISE: International Security Exchange, a subsidiary of EUREX, a European derivative exchange; OTC: over-the-counter.

https://www.cls-group.com/products/settlement/clsclearedfx/

CLSClearedFX is the first payment-versus-payment settlement service specifically designed for over the counter (OTC) cleared FX derivatives. The service enables central counterparties (CCPs) and their clearing members to safely and effectively mitigate settlement risk when settling cleared FX products.

The service delivers capital, margin, leverage, liquidity and operational benefits for industry participants, and is consistent with goals set by the G20 in response to the global financial crisis to mitigate systemic risk through the clearing of standardized OTC derivatives.

https://www.clarusft.com/fx-clearing-the-750bn-market-that-keeps-growing/

FX Clearing – the $750bn market that keeps growing

  • LCH ForexClear continues to dominate the cleared NDF market.
  • CME have recently announced that 7 market participants intend to clear NDFs across their service next year.
  • We look at the CME’s existing volumes in FX futures.

FX NDF Clearing Update

When we last looked at NDF Clearing in June 2017, we saw that LCH were dominating volumes. Open Interest had risen to $600bn+ and monthly volumes were up over $400bn, with March 2017 pushing $500bn. Has anything changed since? Amir provided an update for September, and bringing this up-to-date via CCPView shows:

NDF Notional Outstanding

Showing;

  • LCH ForexClear continues to dominate NDF clearing. 92% of notional outstanding is at LCH.
  • Total Notional Outstanding of cleared NDFs has now surpassed $750bn – both in total and at ForexClear alone.
  • Growth since the beginning of 2017 has been impressive, with Open Interest basically doubling (it is 1.88 times higher now than end of December 2016).

And in terms of monthly volumes, October 2017 was near to the records set in September. The weekly time-series of volumes shows a steady upwards trend:

Weekly Cleared NDF Volumes
  • The biggest week was the end of September, when $184bn cleared in total.
  • There have now been four weeks when total clearing volumes have topped $150bn.
  • Our disclosures data shows that the number of participants at LCH ForexClear have increased over the past year. We started at 25 in Dec 2016 (23 of whom were banks), and we were up to 27 as at end June 2017 (our latest data point).

As a reminder, this move to NDF Clearing appears to be a post-trade process. We still see less than 4% of volumes reported to SDRs flagged as “Cleared”. Actual market take-up is much larger than this (about 20% of the total market is cleared and 35% of D2D markets according to our last estimates) – but the trades are novated to clearing after trading, and hence do not appear to be cleared in public trade reports.

FX Futures

Elsewhere in FX markets, CME recently announced a new “FX Link” product:

CME FX Link

This obviously piqued our interest at Clarus – we like innovation, we are keen followers of the FX market and we are continually looking at ways that volumes may move across OTC and Futures products. This new product ticks a lot of those boxes!

Add in the fact that EMIR brings VM to FX Forwards next year, and this product is one we will watch closely. If counterparties can bring in multilateral netting benefits of clearing to any of their OTC business, it may lessen the funding impacts from having to post VM on FX.

In terms of the product itself, I understand this to be the concurrent buy and sell of OTC Spot versus an FX Future at CME. As well as managing VM in a UMR world, this product offers the same exposures to risk factors as an OTC FX Forward – interest rate differentials between two currencies, very short dated cross currency basis exposure – but could allow users to manage OTC credit and settlement exposures by using a future for the long-leg.

For CME, I imagine transferring as much liquidity as possible from the OTC space to the futures space is important. Therefore, using Quandl, I had a look at FX futures volumes recently:

Daily FX Futures volumes in EURUSD. Data from quandl.com

Showing;

  • Number of contracts traded in the front EURUSD FX Futures contract every day since June.
  • Volumes have been very stable.
  • The rolling ten-day average (the orange line) shows anything between 150-250,000 contracts trade each day. Multiply by EUR125,000 notional value tells us we have a notional equivalent volume of around €25bn.
  • Bloomberg frequently call the FX market a “$5 trillion” market:

  • That number comes from the BIS Triennial Survey, which we’ve analysed in plenty of detail in the past.
  • In that BIS survey, we see an average daily volume for EURUSD spot of ~$500bn. If we treat the CME future as a spot-like product (because it trades on an outright basis and I imagine is largely used for price risk transfer) then about 5% of spot-market equivalent volume occurs in futures markets.

It will be an interesting one to watch. Our chart suggests volumes in FX Futures have been fairly static recently. Will this new product shake things up?

NDF Clearing at CME

That was going to be that before I saw another release from CME this week:

I’ve not got too much to add to the press release apart from;

  • Cross-margining versus Non Deliverable IRS will be offered. This is interesting as I do not think that LCH cross-margin ForexClear versus SwapClear (let me know if you think different in the comments). On the LCH 2017 roadmap, non deliverable swaps should soon be available at SwapClear (Q4 2017).
  • It is not clear if these members are new members or are existing clearing members at CME. Our Disclosures data (identified as “CME IRS” ) shows that CME had 23 clearing participants at end June 2017.

We will be keeping a keen eye in Q1 2018 for these volumes coming through into the CME service. Make sure to subscribe to stay on top of these market trends.

In Summary

  • Open Interest in Cleared NDFs has surpassed the $750bn mark.
  • LCH dominate NDF clearing at the moment, with up to $150bn in notional volumes trading each week.
  • CME will be bringing more competition to NDF clearing in 2018 with seven participants intending to clear.
  • CME already have a successful FX franchise, with EURUSD FX Futures accounting for around 5% of spot market volumes.
  • CME are introducing an FX Link product in 2018 which will combine OTC spot and Futures contracts into a single executable spread.
  • Clarus data helps market participants stay on top of these trends by showing where volumes are traded.

Stay informed with our FREE newsletter, subscribe here.

https://www.thetradenews.com/eurex-to-launch-otc-fx-clearing-service/

Eurex to launch OTC FX clearing service

Eurex will look to open up competition for clearing OTC FX derivatives in Europe.

 

Eurex will begin clearing OTC FX derivatives following the launch of new systems changes to clearing swaps, as it looks to compete in new asset classes with LCH.

Eurex Clearing is cooperating with 360T to introduce clearing on OTC FX swaps, spots and forwards in EUR/USD and GDP/USD, with CLS acting as the settlement agent.

According to a circular from the Frankfurt-based exchange group, it plans to launch the service after it goes live with a series of changes to EurexOTC Clear on 15 May. It currently provides clearing for FX futures and listed options.

The move will open up competition in the FX swaps market, with London-based LCH currently operating the only clearing service for OTC FX derivatives in Europe. So far this year LCH has cleared over 128,000 contracts with a notional volume of $2.9 trillion.

According to data from ClarusFT, over a third of dealer-to-dealer volumes were cleared in the non-deliverable forwards market at the end of last year.

Previous reports have suggested LCH is looking to launch an OTC FX options clearing service. Meanwhile CME Group has said it will expand its cleared FX suite this year by offering FX options on seven main currency pairings.

Tagged: , ,

https://www.bestexecution.net/360t-future-fx-david-holcombe/

360T : The Future of FX : David Holcombe

THE FUTURE OF FX: EXCHANGE TRADED AND OTC LIQUIDITY?

Best Execution talks to David Holcombe, Product Lead for FX Futures and Clearing, 360T

Is the FX market really heading towards being an exchange traded and centrally cleared market?

This isn’t an all or nothing point in either direction. One size does not fit all in the FX market. The Deutsche Boerse Group FX strategy is actually a good view of the end state of the FX landscape – where informed clients will establish whether to clear any given trade, then use the right tools to achieve that.

When will that be? Cleared and exchange traded FX is still a small fragment of the overall FX market, so surely that “end state” view is still many years away?

My role is to ensure 360T exploits tight integration between 360T, the Eurex Exchange, Eurex Clearing and other group entities to create a truly front-to back FX offering for our clients that covers Exchange and OTC FX liquidity. We haven’t made a public song and dance about this, but this integration really is very well advanced, and you will see FX futures traded via 360T in the first quarter of 2018.

Beyond tools to let our clients choose the right FX product for the trade they need to do, using the right execution model, and the right credit and clearing model to exploit all the benefits available, the challenge the industry faces right now is to understand what clearing means, and what it can do for them.

OK, so if clearing is the start point for all of this, how do I know whether to clear something?

It’s actually a complex consideration. We’ve had a specialist consultancy in to prepare analysis to quantify the benefits of central clearing for FX, as in the absence of clearing mandates, the decision process to clear needs to consider multiple attributes for any given scenario. With so many moving parts as variables in the model, we are now going through these results with clients individually, offering to put their sample portfolios through our modelling tool to see where they will gain.

Ultimately though, one has to understand what the real drivers for each trade are, and also to consider the full impact that the trade will have on the portfolio in each form it could take, in order to then make an informed decision of how and where to get the best trade done with the best outcome.

So, once you need to clear, how do you choose between OTC executed flow or exchange products?

While the use of exchange listed products amplifies the benefits of clearing, the answer is still pretty much down to product access and liquidity.

It’s understandable that OTC execution is a place many start when considering clearing, because exchange-traded FX has never really been centre stage in the FX market. The majority of our clients being real FX participants state that a market built on the foundations of “how much and who’s asking”, with a myriad of ways in which LPs and clients can meet to bilaterally negotiate and trade OTC FX, have meant the US-focused exchange offerings, with limited value dates and product flexibility, have always been too far away from being a good fit for their needs.

Also, it is fair to say that trading on an exchange platform doesn’t suit everyone, and clients with strong relationships that have historically served them very well, particularly in bilateral disclosed models, are understandably inclined to favour those routes to interact with the market. This is the execution model you will see in our 360T Block and EFP network: access to FX futures, while trading using familiar OTC models and tools.

When OTC products are the right route though, the availability of a clearing service for the product you need is the first obvious consideration. While interdealer NDF clearing is pretty much routine now, no CCP has yet been able to satisfy the regulators that they are effectively managing the settlement risk they concentrate between members for deliverable OTC FX products, in order to address the bulk of the market’s ADV – deliverable Spot, Forward and FX Swaps. Deliverable OTC FX clearing will become a reality in 2018 though, as we are one of two major CCPs currently finalising a deliverable FX clearing service, with the Deutsche Boerse Group’s Eurex Clearing service being the only one focused on letting you clear FX Spot, Forward, FX Swap, alongside cross currency swaps.

Once you have determined the position is going to be cleared, then your focus should be whether listed or OTC products give you the best route to get that position into the clearing house, considering all liquidity available: in the exchange orderbook and off-book – exactly the model 360T has with support for OTC alongside exchange listed FX products.

Well that’s clear – the customer gets the choice of using an OTC or exchange FX product, and accessing those exchange products on or off the exchange orderbook, but surely the problem with listed FX remains – the products are not a particularly good fit for OTC users?

The uptake of FX futures will be helped by next generation products that evolve FX futures from the US contracts with a small number of infrequent value dates, to something closer resembling the flexibility of OTC products.

We do have classic shaped FX futures contracts, albeit with OTC characteristics like having the currency pair quoted the right way around for OTC users, but a perfect example of next generation FX is the Eurex Rolling Spot Future. This is the simplest way to get FX spot exposure into the CCP, using an exchange listed product designed with a focus on removing incumbent costs in OTC rolls, with multiple liquidity providers considering the exchange orderbook and also how they can use the 360T block and EFP functionality to increase their distribution.

With all of these points aligning, the future of FX is here. Giving the customer true choice of product, execution type, and credit/clearing model so they can exploit the benefits that clearing can bring is certainly a challenge, but all of the foundations are already there for this client choice to become a reality in 2018 within 360T and the Deutsche Boerse Group.

http://www.360t.com

https://marketvoice.fia.org/issues/2017-12/cme-vs-lch-take-twoCME vs. LCH: Take Two

CME reinvigorates NDF clearing service in battle with LCH’s ForexClear

By

Nicola Tavendale

CME Group is making another run at the OTC FX market. The Chicago-based market operator recently unveiled an agreement with seven leading liquidity providers to begin using its clearing service for non-deliverable forwards and redoubled its efforts to promote the capital efficiencies that clearing can provide for FX traders. But with LCH currently dominating NDF clearing, is there really enough demand for the CME solution?

Over the last two years, NDF clearing has exploded as margin requirements for uncleared derivatives have come into effect around the world. Banks seeking to avoid those margin requirements have mainly turned to LCH’s ForexClear service, which provides clearing for NDFs in 12 emerging market currencies as well as several G-10 currencies. The service has 30 clearing members and has signed up an additional 3,000 client accounts this year alone. In the third quarter, the London-based clearinghouse processed NDFs worth $1.5 trillion in notional value, up more than 400% from the third quarter of 2016.

NDF Clearing Surges
Monthly Notional Value Cleared at LCH (Billions USD)

NoteMonthly clearing volumes include a small amount of NDFs in major currencies such as EUR, GBP, JPY and CHF. These NDFs make up less than 0.1% of total NDF clearing volume.
Source: LCH 

Virtually all interdealer activity resides on the LCH platform, explained John O’Hara, Americas head of prime brokerage and clearing at Société Générale Corporate and Investment Banking. But he said there is demand for a CME solution as well. One reason is the potential synergy with CME’s well-established foreign exchange futures market, which boasts more than $91 billion in average daily volume and more than $260 billion in open interest. “People gravitate toward what is most familiar to them, and for those actively clearing futures on CME, OTC FX clearing is a natural progression,” O’Hara explained.

CME has offered NDF clearing for several years but with minimal success. As of early December, across the 12 emerging market NDFs that CME clears, the only one with any activity was the Colombian peso NDF. The open interest in all of the others was exactly zero.

CME sees an opportunity for a second chance, however. So far most of the NDF clearing has been for interbank trades, but fund managers and other buyside institutions are poised to take up clearing as margin requirements for uncleared derivatives come into effect. CME is hoping that it can capture a share of this business by offering a clearing solution that combines OTC FX products with listed futures and options. Portfolio margining of OTC FX NDFs and listed FX futures is not available yet, but CME is working on getting regulatory approval and is hoping to bring that live in 2018.

Getting Market Makers on Board

The deeper challenge is pricing. Market sources said because ForexClear has been so widely adopted, liquidity in NDFs that are cleared at LCH are quoted with a tighter bid-ask spread than NDFs cleared at CME. CME is hoping to address that issue with its November announcement that seven leading NDF liquidity providers intend to start clearing with the service by the end of the first quarter of 2018. The seven liquidity providers are BBVA, Citi, Itau Unibanco, NatWest Markets, Santander, Standard Chartered and XTX Markets.

It is no accident that three of the liquidity providers—BBVA, Itau Unibanco, and Santander—are specialists in Latin American markets. Many of the most heavily traded NDFs are based on Latin currencies such as the Brazilian real and the Colombian peso. The other big center for NDFs is in Asia. That is one of the strengths of Standard Chartered, one of the top liquidity providers in Asian forex markets.

XTX is the only one of the seven that is not a bank, but the London-based electronic trading firm has emerged over the last three years as a major liquidity providers in the FX market. In last year’s Euromoney survey, which calculates market share across the top forex market-makers, XTX took third place in electronic spot trading in last year’s Euromoney survey of market share across the top FX market makers, and first place in this year’s FX Week awards for best liquidity provider.

All Under One Roof

CME also argues that its solution has a structural advantage. At LCH, the ForexClear service has its own default fund that is separate from its clearing services for other asset classes such as interest rate swaps. At CME, NDFs are under the same umbrella as a range of related products, including listed FX futures and options as well as interest rate swaps. That opens the door for margin offsets that LCH cannot offer. For example, CME estimates that the margin offsets between NDFs and non-deliverable interest rate swaps denominated in currencies such as the Brazilian real and the Korean won could go as high as 51%. The single default fund structure also offers capital savings for clearing firms. Rather than having to commit their capital to multiple default funds, the clearing firms only need to make one commitment that covers all the asset classes that they clear.

“Our NDF clearing solution leverages the same guaranty fund as the entire CME Group-listed futures and options complex, enabling material capital savings for our NDF clearing members and lower fees for customers clearing via an FCM,” Sean Tully, CME’s senior managing director of financials and OTC products, said in November when the agreement with the seven liquidity providers was announced.

Buyside Interest on the Rise

One of the key drivers behind the rise in demand for NDF clearing is the implementation of uncleared margin rules, which are still in the early stages of being phased in. Paddy Boyle, global head of ForexClear, explained that bilateral initial margin was initially required from all participants with at least $3 trillion of notional outstanding. That limit has now fallen to $2.25 trillion and will continue to fall to lower and lower thresholds. By September 2020, nearly all market participants will be subject to the rules.

“When we reach the final threshold in 2020, NDFs that are bilaterally traded and uncleared will become significantly more expensive and will provide all types of institutions with obvious greater incentive to clear,” Boyle said. Although most buyside firms are not yet subject to the margin requirements, Boyle said there is a “small but active group” of buyside firms voluntarily clearing NDFs at LCH now. “We expect buy-side clearing to grow substantially over the next few years, particularly as most buy-side firms will be caught as the thresholds continue to fall in 2019 and 2020,” he added.

“We expect buy-side clearing to grow substantially over the next few years, particularly as most buy-side firms will be caught as the thresholds continue to fall in 2019 and 2020.”

– Paddy Boyle, LCH

Basu Choudhury, head of business intelligence at NEX Traiana, also predicted that the buy side will soon have to start clearing more. Choudhury, who worked at ForexClear before joining Traiana in August 2016, explained that the first two waves of margin rules created an upturn in demand from tier one and tier two banks for NDF clearing. “Come January 2018, buy-side firms globally will also start to be impacted, so what CME are looking to do on the NDF side makes sense,” he said.

There is an added attraction for mutual funds in the U.S., according to SocGen’s O’Hara. “Since these fund structures have leverage and cash retention requirements measured on a gross notional basis when trading deliverable forwards, they have been seeking ways to ensure that there is no chance of delivery so their exposure can be assessed purely on a mark-to-market basis,” he explained. Since the CCPs have a mechanism wherein they can disallow delivery, they should be able to provide this relief, he said.

Convergence Play

Bringing liquidity providers on board is only one part of a renewed focus on the OTC FX market at CME. The company also is preparing to roll out a new service in the first quarter that will give OTC market participants better access to the liquidity in CME’s FX futures. Starting on Feb. 18, CME’s Globex electronic trading platform will support a central limit order book for trades that track the basis between spot FX and FX futures. This service, called FX Link, will enable the trading of an OTC spot FX contract and an FX futures contract via a single spread trade.

CME is partnering with Citi, one of the largest liquidity providers in the FX market, to act as central prime broker for the spot FX transactions resulting from the spread. The benefit of this arrangement, according to CME, is that it will allow participants to tap into their existing OTC FX interbank credit relationships and the established OTC FX prime brokerage network.

“By strengthening the integration between futures and the OTC FX marketplace, CME FX Link will enhance access to our deeply liquid FX futures market,” Paul Houston, CME’s global head of FX products, said in September when the initiative was announced. “OTC FX market participants will benefit from the capital and regulatory advantages of listed futures as well as optimizing credit lines through facing a central counterparty.”

“There will continue to be a convergence of sorts as OTC becomes more futures-like and futures assume some characteristics of OTC.”

– John O’Hara, Société Générale

In addition, both CME and ForexClear are preparing to launch OTC FX options clearing. CME said it is working with major FX options dealers to deliver a cash-settled clearing solution later this year, with the expectation of volumes beginning in early 2018. In contrast, ForexClear’s solution will offer physical settlement of OTC FX options in partnership with CLS, the widely used settlement service. ForexClear is currently seeking regulatory approval and plans to start by offering clearing in eight major currency pairs.

SocGen’s O’Hara explained that the options market has historically been characterized by physical settlement and many firms’ operational infrastructures have been built with this in mind. CME’s view, however, is that physical-settlement had become the standard simply as a consequence of how the market evolved and that cash settled would be the norm if it were starting today.

Ultimately the FX market is big enough to support both clearinghouses, according to Choudhury. “In IRS clearing we saw the buyside use CME initially while big dealers used LCH and it will be interesting to see if the same occurs with FX clearing,” he said. “CME do offer risk offsets between FX futures and OTC FX. For the buyside this may be attractive due to arbitrage opportunities, but dealers may prefer the LCH model due to larger netting pool.”

O’Hara commented that all of these moves are part of a larger trend that is blurring the lines between different sectors of the FX marketplace. “There will continue to be a convergence of sorts as OTC becomes more futures-like and futures assume some characteristics of OTC,” he said.

Other Topics

  • CME NDFs
  • Algorithmic Trading
  • High Frequency Trading
  • Global Code for FX Transactions

 

 

 

 

Please see my related posts

Understanding Global OTC Foreign Exchange (FX) Market

Key Sources of Research

Foreign exchange liquidity in the Americas

https://www.bis.org/publ/bppdf/bispap90.pdf

High-frequency trading in the foreign exchange market

https://www.bis.org/publ/mktc05.htm

 

Monitoring of fast-paced electronic markets

https://www.bis.org/publ/mktc10.htm

Click to access mktc10.pdf

Liquidity Provision in the Interbank Foreign Exchange Market

Frederick Van Gysegem

2013

 

Click to access 4197291.pdf

 

 

 

The Retail FX Trader: Rising Above Random

Christopher J. Davison

Nottingham Trent University, UK

February 4th 2016

 

Click to access 5881_Davison.pdf

 

 

 

 

The Evolution of Foreign Exchange Markets in the Context of Global Crisis

Mariana Trandafir1, Georgeta Dragomir2

 

Click to access 045cXL4244.pdf

 

 

 

Liquidity in FX spot and forward markets∗

Ingomar Krohn† Vladyslav Sushko‡

First draft: November 2017

Click to access 28-krohn-liquidity-in-fx-spot-and-forward-markets.pdf

 

Click to access GRU%232017-019%20Krohn%20Sushko.pdf

 

 

 

Essays on the FX Market Microstructure

 

https://biblio.ugent.be/publication/8541119/file/8541128

FX Spot and Swap Market Liquidity and the Effects of Window Dressing

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3092248

 

 

 

 

Foreign Exchange Market: Institutional Structure, Regulation, and Policy Implications

Fei Su1,*, Jun Zhao

 

Click to access jfe-5-5-1.pdf

http://pubs.sciepub.com/jfe/5/5/1/index.html

 

 

 

Trading Too Expensively in the FX Market? Empirical Evidence on Liquidity from an Aggregator

 

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3208229&download=yes

 

 

 

Development and Functioning of FX Markets in Asia and the Pacific1

Richard M. Levich2
NYU Stern School of Business and NBER

Frank Packer3
Bank for International Settlements

Click to access L-Packer.pdf

 

 

 

Settlement Risk in the Global FX Market: How Much Remains?

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2827530&download=yes

The Retail Spot Foreign Exchange Market Structure and Participants

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2753823

 

 

 

FX MARKET METRICS: NEW FINDINGS BASED ON CLS BANK SETTLEMENT DATA

Joel Hasbrouck Richard M. Levich
March 2017

Click to access w23206.pdf

 

 

The flows of the Pacific: Asian foreign exchange markets through tranquility and turbulence

Dagfinn Rime and Hans Jørgen Tranvåg

 

https://brage.bibsys.no/xmlui/bitstream/handle/11250/2496837/wp_2012_1.pdf?sequence=1

 

 

 

FX counterparty risk and trading activity in currency forward and futures markets☆

Richard M. Levich

https://onlinelibrary.wiley.com/doi/pdf/10.1016/j.rfe.2012.06.004

 

 

 

Downsized FX markets: causes and implications

 

Click to access dfc8c7fd137a4927bd1a910ddb7650aeb4d3.pdf

 

 

 

The Asia Pacific FX Markets: Opportunities for Growth

KPMG

 

Click to access the-asia-pacific-fx-markets.pdf

 

 

 

Foreign exchange market structure, players and evolution

Michael R. King, Carol Osler and Dagfinn Rime

 

Click to access Rime-2.pdf

 

 

 

Foreign exchange trading and settlement: Past and present

Click to access cflfebruary2006-223-pdf.pdf

 

 

The foreign exchange and derivatives markets in Hong Kong

 

Click to access fa.pdf

 

 

Developments in Foreign Exchange and OTC Derivatives Markets

Megan Garner, Anna Nitschke and David Xu

 

Click to access rba-bulletin-2016-12-developments-in-foreign-exchange-and-otc-derivatives-markets.pdf

 

 

What’s behind the BIS Triennial Foreign Exchange Survey in 2016:Waning Risk Appetite and Expanding RMB Transactions

Kikuko Takeda
Senior Economist

 

Click to access NL2017No_2_e.pdf

A set of global principles of good practice in the foreign exchange market

 

Click to access fx_global.pdf

 

 

Cleared OTC FX

Click to access otc-fx-clearing.pdf

Click to access coupon-blending-for-ndfs.pdf

 

 

The spillover of money market turbulence to FX swap and cross-currency swap markets1

 

Click to access r_qt0803h.pdf

 

 

The Foreign Exchange Market and Central Counterparties

Mark Manning, Alex Heath and James Whitelaw*

 

Click to access bu-0310-8.pdf

 

 

 

Foreign Exchange Swaps and Forwards: Product Overview

 

Click to access FXC_Letter_113010.pdf

 

 

 

 

DAT consultation response – Incentives to centrally clear over-the-counter (OTC) derivatives

 

Click to access GFMA-Global-Foreign-Exchange-Division.pdf

360t.com

Cross Border/Offshore Payment, Clearing, and Settlement Systems -Update October 2019

Cross Border Payment, Clearing, and Settlement Systems -Update October 2019

 

There have been several new developments in Cross Border Payments Solutions landscape.

  • Interbank Cross Border Payments
  • Retail Cross Border Payments

 

Interbank Payments

  • Ripple
  • SWIFT
  • SWIFT GPI
  • JPMCoin
  • IBM Blockchain World Wire {BWW}

 

RIPPLE

From {https://digital.hbs.edu/platform-digit/submission/ripple-the-disruptor-to-the-forty-years-old-cross-border-payment-system/}

Cross-border payments today are inefficient, expensive and opaque.

The Global Interbank Financial Telecommunication Company (SWIFT) established in 1973 is still the most widely used method to send cross-border payment using the transmission of financial messages via the international SWIFTNet network.

However, the SWIFT financial messages do not hold accounts for its members nor make any form of clearing or settlement. It essentially only sends payment orders which need to be settled by the correspondent account that the institution has with each other. For this reason, each financial institution needs to have a banking relationship to exchange banking transactions.

This is why it requires 6 players linked up – payer, payer’s bank, payer’s bank’s correspondent, beneficiary bank’s correspondent, beneficiary bank, beneficiary to complete cross-border payments.

[1]

There are many obvious drawbacks of such system:

  • Cross-border payments can be expensive and sometimes even charged a percentage fees
  • Extra fees such as “lifting fees” or correspondent banking fees by intermediary banks are common
  • Bank keep the money for extra time and delay the payout “float money theft”
  • Exchange rate can have big spread

The high processing costs, lengthy settlement times and a poor customer experience prevents many new usage scenarios such as on-demand, low-value cross-border payment or mobile wallets. It is estimated that $1.6T per year for all parties in the ecosystem has spent yet unable to meet today’s cross-border payment need[2].

Ripple Labs (formerly OpenCoin) launched in 2012 with a mission to build a cross-border, interbank payment and settlement network using the concepts behind bitcoin. Ripple offers sub-second cross-border payments with automated best pricing from its network. As payments are nearly instant, it helps to remove the credit and liquidity risk from the process, lowering overall costs considerably.

 How is it done?

The core of its solution is RippleNet, a single, global network of banks that send and receive payments via Ripple’s distributed financial technology — providing real-time messaging, clearing and settlement of transactions.

RippleNet utilizes a subset of blockchain technology used in bitcoin. It uses the consensual validation of encrypted hashes to secure the messages across the Ripple network but does not hold the ledger, unlike bitcoin. Ripple names this open, neural protocol Interledger Protocol (ILP). ILP allows Ripple to connect existing bank ledgers, similarly to how banks connect their core system to the SWIFT network.

 

SWIFT GPI

From https://www.bellin.com/blog/swift-gpi-transparent-cross-border-payments/

Challenges in cross-border payments

Cross-border payments usually pass through several banks until the funds have been transferred from the payer to the account of the beneficiary. This is referred to as correspondent banking. This results in four obstacles that are virtually insurmountable for treasurers as things stand today:

1)   Time: Traditional cross-border payment orders can take several days from being released to being credited – way too long for efficient cash management.

2)   Transparency: Several correspondent banks can act as intermediaries between the bank initiating the payment and the beneficiary bank – an impenetrable banking jungle that causes treasurers sleepless nights for security and compliance reasons.

3)   Tracking: Today, treasurers neither know where a specific payment is located nor when it will be credited to the beneficiary – an incalculable business risk and a situation that often leads to time-consuming queries, trying to chase a payment.

4)   Remittance data: Remittance data is often altered somewhere along the line or information is lost. Sometimes the amount eventually credited to the account does not match the initial payment order because correspondent banks have deducted fees, resulting in a tedious reconciliation process once the money has arrived.

SWIFT global payments innovation – SWIFT gpi

In January 2017, SWIFT introduced the gpi Service that can be used to process global payments in a fast and traceable manner. The objective is for every one of the around 10,000 SWIFT Network banks to be able to offer money transfers within 24 hours with continuous end-to-end tracking and complete transparency along the entire payment chain by the end of 2020. This transparency and efficiency is made possible by using a specific gpi reference, the Unique End-to-End Transaction Reference UETR.

SWIFT GPI Instant Payment Cross Border

How the Unique End-to-End Transaction Reference (UETR) works 

You can compare the UETR to the tracking number of a parcel: The sender issues a unique, unalterable reference that shows you where the order is located at any one time. This reference ensures complete transparency as well as fully digitized and therefore speedy processing. In addition, the sender is automatically notified of any payment status changes. Conventional transfers often drop off the radar for quite some time, and you’re left wondering where your money has gone, not to mention the effort it will take you to retrace and reconcile afterwards.Conversely, gpi transfers generate an abundance of messages that keep you up to date on the status of your payment.

The same applies to the respective bank departments who can also trace corporate payments, enabling them to react to queries much faster. Some banks have integrated functionality in their online banking applications that enables corporate clients to track their gpi payments. Not a bad idea – the only downside is that most corporates use more than one bank for their international payments, which would mean checking several banking portals. This is why a bank-independent treasury management system such as tm5  is a much more elegant solution. All tracking and status information converges in one centralized hub, no matter how many banks are involved.

SWIFT gpi for Corporates (g4C) – new dynamic and transparency in treasury

In November 2018, SWIFT launched the SWIFT g4C project in order to enable corporates to directly benefit from the gpi technology. The objective was to offer corporates a solution for initiating gpi payment orders directly in their payments system. BELLIN was selected as one of the Early Adopters and was the first TMS provider with a client live on g4C. The pilot phase has been completed and the technology is fully integrated in the tm5 treasury management system and BELLIN’s SWIFT offering.

What does this mean for banks and companies?

The role of banks

Banks must be able to process certain information in order for it to be included in gpi payment orders. More than 280 financial institutions worldwide, including 49 of the TOP 50 banks, have agreed on a standardized SLA. With so many banks participating, communication is guaranteed. i.e. funds are transferred quickly from one bank to the next. By now, most banks have started processing cross-border payments as gpi payments.

The role of companies

The UETR is crucial for processing gpi payments. Companies that initiate their own payments, for example through a treasury management system integrated payment solution need to attach this reference to a payment order in line with SWIFT requirements or extend the format of a payment in the right place to include this information. The information transmitted by way of the UETR simplifies reconciliation and can be matched automatically, depending on the system.

BELLIN offers integrated SWIFT g4C technology

The BELLIN treasury management system, tm5, offers integrated SWIFT gpi technology. The system generates the unique and unalterable tracking reference UETR that is required for gpi payments. In addition, tm5 automatically processes incoming gpi status messages, enabling users to check the status of a payment at any time.

Corporates need a SWIFT BIC (Business Identifier Code) to make use of SWIFT g4C technology. They register their BIC for gpi for Corporates and connect financial institutions that offer g4C. All in all, SWIFT g4C unlocks completely new opportunities for automating treasury processes, in turn leading to efficiency gains and increased security.

How will gpi change treasury?

gpi is fast, creates transparency regarding fees and currencies and provides a wealth of information about the location of a payment and other aspects that simplify reconciliation. The SWIFT gpi initiative is clear evidence that corporate payments are moving towards real-time processing. In turn, this will change processes and the way treasurers work.

 

Retail Cross Border Payments Systems

 

Retail Payments/Transfers to India

{From ManiKarthik.com}

  • XOOM
  • Remitify
  • Remitly
  • Ria
  • Western Union
  • State Bank of India
  • Transfast
  • Transwise
  • ICICI Bank Money to India
  • WorldRemit
  • IndusInd Bank

 

Block Chain Based Cross Border Payment Systems

  • AIRFOX
  • CIRCLE PAY
  • ZCASH
  • RIPPLE
  • VEEM
  • IVY
  • GLUWA
  • STELLAR
  • ABRA

 

 

Top Cross Border Payment Companies

{https://www.ventureradar.com/keyword/Cross%20Border%20Payments}

  • Ripple
  • Seedrs
  • CurrencyFair
  • Transferwise
  • Payoneer
  • WorldRemit
  • Trustly Group
  • TransferGo
  • Raisin
  • Zooz
  • TransferMate Global Payments
  • Calastone
  • Airwallex
  • Hufsy
  • InstaReM
  • Caxton
  • Veem
  • nanoPay
  • Credorax
  • Transfast
  • wyre
  • Bitbound GmbH
  • Currency Transfer
  • Earthport PLC
  • Bitso
  • WB21
  • iSignthis
  • Currency Cloud
  • BitPay
  • MoneyTrans
  • Moni
  • Traxpay
  • Qwikwire
  • Streami Inc
  • PiP iT
  • Swych
  • HoneSend
  • Afrimarket
  • Fonmoney
  • Lala World
  • Flime
  • Smart Token Chain
  • TransferTo
  • EQ Global
  • Weeleo
  • SimbaPay
  • KUARIX
  • REMITWARE Payments
  • PingPong
  • Buckzy Payments

 

 

Please see my related posts:

Cross Border/Offshore Payment and Settlement Systems

Instant, Immediate, Real Time Retail Payment Systems (IIRT-RPS)

Evolving Networks of Regional RTGS Payment and Settlement Systems

Large Value (Wholesale) Payment and Settlement Systems around the Globe

Structure and Evolution of EFT Payment Networks in the USA, India, and China

Next Generation of B2C Retail Payment Systems

Understanding Global OTC Foreign Exchange (FX) Market

Sources of Research:

 

Ripple wants a piece of the global payment system

 

https://www.cnbc.com/2019/01/07/ripple-wants-a-piece-of-the-global-payment-system.html

How IBM Blockchain World Wire revolutionizes cross-border payments

IBM

https://www.ibm.com/downloads/cas/YW3W2JPZ

NAVIGATING A WORLD OF PAYMENT SOLUTIONS

WHAT YOU NEED TO KNOW FOR TODAY — AND TOMORROW

George H. Hoffman, CTP, CERTICM, Senior Vice President, Manager, International Advisory, PNC

Kacie V. Johnson, Assistant Vice President, International Advisor, PNC

 

Click to access navigating-payment-solutions.pdf

Siam Commercial Bank Of Thailand To Use Ripple For Cross-border Payments With Easy Pay App

Siam Commercial Bank Of Thailand To Use Ripple For Cross-border Payments With Easy Pay App

Ripple and Xendpay partner for cross-border payments

https://www.fxcompared.com/magazine/news/ripple-and-xendpay-partner-cross-border-payments

The Future Of Cross-Border Payments

FORBES

Click to access d173.pdf

 

A vision for the future of cross-border payments

McKinsey

 

https://www.mckinsey.com/~/media/McKinsey/Industries/Financial%20Services/Our%20Insights/A%20vision%20for%20the%20future%20of%20cross%20border%20payments%20final/A-vision-for-the-future-of-cross-border-payments-web-final.ashx

FASTER, CHEAPER, SAFER: 9 COMPANIES USING BLOCKCHAIN PAYMENTS

https://builtin.com/blockchain/blockchain-payments

Global Payments 2020: Transformation and Convergence

BNY Mellon

Click to access global-payments-2020-transformation-and-convergence.pdf

 

Top 10 Trends in Payments 2018 : What You Need to Know

Cap Gemini 2018

Click to access payments-trends_2018.pdf

 

 

Strategies for Improving the U.S. Payment System

Federal Reserve Next Steps in the Payments Improvement Journey

Click to access other20170906a1.pdf

 

 

SWIFT gpi: A New Era in Treasury

Fast, transparent, traceable and system-integrated cross-border payments

https://www.bellin.com/blog/swift-gpi-transparent-cross-border-payments/

 

 

The Use of RMB in International Transactions:

-Background, Development and Prospect

Click to access pdf-rmb-JinZhongxia.pdf

 

 

 

The Cross-Border Payments Landscape

 

Click to access 9308A_1-2018-9-17.pdf

 

 

Swift to test real-time cross border payments in Europe

https://www.finextra.com/newsarticle/33852/swift-to-test-real-time-cross-border-payments-in-europe

 

 

Singtel’s cross-border payments system expands to Japan

The Via cross-border payments system has expanded into Japan thanks to a partnership with Netstars.

https://www.zdnet.com/article/singtels-cross-border-payments-system-expands-to-japan/

 

 

THE FUTURE OF CORRESPONDENT BANKINGCROSS BORDER PAYMENTS

RUTH WANDHÖFER

BARBARA CASU

PUBLICATION DATE: 10 OCTOBER 2018

 

Click to access SIWP-2017-001-The-Future-of-Correspondent-Banking_FINALv2.pdf

 

 

 

How are Asian FIs meeting the challenges and opportunities of cross-border payments?

A Survey on Trends in Cross-Border Payments in Asia Pacific

Click to access TAB_DEUTSCHE_BANK_WHITE_PAPER_-_FI_CROSS_BORDER_PAYMENT.pdf

 

 

 

The Inefficiencies of Cross-Border Payments: How Current Forces Are Shaping the Future

Written by Yoon S. Park, PHD & DBA, George Washington University

VISA

 

Click to access crossborder.pdf

 

 

 

CROSS-BORDER INTERBANK PAYMENT AND SETTLEMENTS

Emerging opportunities for digital transformation

 

Click to access Cross-Border-Interbank-Payments-and-Settlements.pdf

 

 

Global Payment Systems Survey (GPSS)

December 4, 2018
World Bank

https://www.worldbank.org/en/topic/financialinclusion/brief/gpss

 

 

 

Beijing creates its own global financial architecture as a tool for strategic rivalry

Govt of Canada

https://www.canada.ca/en/security-intelligence-service/corporate/publications/china-and-the-age-of-strategic-rivalry/beijing-creates-its-own-global-financial-architecture-as-a-tool-for-strategic-rivalry.html

 

 

 

SWIFT Vs. Ripple — The Importance of Speed in Cross-Border Payments

https://cointelegraph.com/news/swift-vs-ripple-the-importance-of-speed-in-cross-border-payments

 

 

Visa looks to speed up cross-border payments with new network launch

https://www.reuters.com/article/visa-payment/visa-looks-to-speed-up-cross-border-payments-with-new-network-launch-idUSL2N23H1NO

 

 

Cross-border Payment systems: SWIFT, RippleNet or BWW?

 

Cross-border Payment systems: SWIFT, RippleNet or BWW?

 

Rise of the yuan: China-based payment settlements jump 80%

Data shows Beijing attracting countries targeted by US sanctions

https://asia.nikkei.com/Business/Markets/Rise-of-the-yuan-China-based-payment-settlements-jump-80

 

 

 

http://www.cips.com.cn/cipsen/7052/7057/index.html

https://www.treasury-management.com/article/1/355/2929/cips-chinas-hybrid-net-settlement-clearing-system.html

 

 

SWIFT’s Battle For International Payments

Forbes

https://www.forbes.com/sites/francescoppola/2019/07/16/swifts-battle-for-international-payments/#64699a4e758e

 

 

EU Cross Border Payments: An evolving concept

 

Click to access lu-eu-cross-border-payments.pdf

 

 

 

INTERNATIONAL PAYMENTS IN A DIGITAL WORLD

YET ANOTHER BANKING BUSINESS THREATENED BY DIGITALIZATION

Click to access accenture-international-payments-digital-world-international-payments-digital-world.pdf

 

 

 

SWIFT gpi Time for action

Deutche Bank

 

Click to access Deutsche_Bank_SWIFT_gpi_White_Paper_December2017.pdf

 

 

 

B2B Payments and Fintech Guide 2019

Innovations in the Way Businesses Transact

 

Click to access B2B%20Payments%20and%20Fintech%20Guide%202019%20-%20Innovations%20in%20the%20Way%20Businesses%20Transact.pdf

 

 

Paying across borders – Can distributed ledgers bring us closer together?

  • RODRIGO MEJIA-RICART
  • CAMILO TELLEZ
  • MARCO NICOLI

MARCH 26, 2019

https://blogs.worldbank.org/psd/paying-across-borders-can-distributed-ledgers-bring-us-closer-together

 

 

Reinventing Payments

In An Era of Modernization

 

Click to access reinventing-payments-in-an-era-of-modernization.pdf

 

 

 

WORLD PAYMENTSREPORT

2018

 

Click to access World-Payments-Report-2018.pdf

 

 

 

Fundamentals of Global Payment Systems and Practices

Click to access Fundamentals_of_Payment_Systems.pdf

 

 

 

Global Payments 2018

REIMAGINING THE CUSTOMER EXPERIENCE

 

BCG

Click to access BCG-Global-Payments-2018-Oct-2018_tcm9-205095.pdf

 

 

 

Cross-Border Banking in Europe: Implications for Financial Stability and Macroeconomic Policies

CEPR

 

Click to access GenevaP223.pdf

 

 

 

Cross-Border Settlement Systems: Blockchain Models Involving Central Bank Money

Xiaohang Zhao, Haici Zhang, Kevin Rutter, Clark Thompson, Clemens Wan

Click to access CrossBorder_Settlement_Central_Bank_Money_R3-1.pdf

 

Instant, Immediate, Real Time Retail Payment Systems (IIRT-RPS)

Instant, Immediate, Real Time Retail Payment Systems (IIRT-RPS)

 

There are Five different kinds of Payments

  • B2C Business to Consumer
  • C2B Consumer to Business
  • B2B Business to Business
  • Domestic P2P Peer to Peer
  • Cross Border P2P Peer to Peer

 

From Real-time payments are changing the reality of payments

IMPS

Existing Real Time Retail Payment Systems around the Globe

From THE U.S. PATH TO FASTER PAYMENTS FINAL REPORT PART ONE: THE FASTER PAYMENTS TASK FORCE APPROACH

IMPS2

Planned Real Tine Retail Payments Systems around the Globe

 

From Global Trends and Developments in Instant Payments

imps3

Current Payments Ecosystem

  • Faster Payments
  • ACH
  • Cards
  • Closed Loop
  • Distributed Ledger

 

From 2017 Advanced Payments Report

IMPS4

Evolving Landscape of Payment Systems

From 2017 Advanced Payments Report

imps5

 

New RTP Developments

 

From Federal Reserve Payment Trends Update

imps6

USA – The Clearing House RTP System

From Federal Reserve Payment Trends Update

imps7

USA – How Payment Platforms Compare?

  • Wires
  • Next Day ACH
  • NACHA Same Day ACH
  • EWS Zelle
  • TCH RTP
  • Mastercard Send

 

From Federal Reserve Payment Trends Update

imps8

Key Sources of Research:

 

 

Real-time payments are changing the reality of payments

Deloitte

Click to access us-cons-real-time-payments.pdf

 

 

 

THE U.S. PATH TO FASTER PAYMENTS
FINAL REPORT PART ONE: THE FASTER PAYMENTS TASK FORCE APPROACH

Federal Reserve

2017

Click to access US-path-to-faster-payments-pt1-201701.pdf

 

 

Zelle

https://www.zellepay.com

 

 

 

Real-Time Payments for P2P
.
Eric Foust
Early Warning
Mike Wolf

2017

Click to access 12.10-Zelle-53-RTP-conference-deck-005.pdf

 

 

Banks Re-enter the P2P Payments Fray: With Mobile, Will this Time Be Different?

By Terri Bradford, Payments Research Specialist

Fed Reserve

Click to access psr-briefingjan2017.pdf

 

 

 

Faster Payments Finds Its Future

NACHA

2016

Click to access Faster-Payments-Tracker-December-2016.pdf

 

 

 

Faster payments: Building a business, not just an infrastructure

McKinsey

https://www.mckinsey.com/~/media/McKinsey/Industries/Financial%20Services/Our%20Insights/Faster%20payments%20Building%20a%20business%20not%20just%20an%20infrastructure/Faster%20payments.ashx

 

 

The Road to Faster Payments

As Real-Time Payments Rise, Payment Hubs See a Resurgence

The Clearing House

2017

https://www.theclearinghouse.org/research/banking-perspectives/2017/2017-q4-banking-perspectives/payment-hubs

 

 

 

Real-Time Payments and Settlement Comes to the United States

How U.S. Banks Can Realize the Full Opportunities of Immediate Payments for Their Customers

D+H

2016

Click to access D+H-US-Real-Time-Payments-and-Settlement-whitepaper-coauthored-PNC-TCH-15-April%202016.pdf

 

 

 

Real-Time, Cross-Border Payments Survey

2017

IPFA

Click to access Real-time-Cross-Border-Payments-Final.pdf

 

 

 

Strategies for Improving the U.S. Payment System Federal Reserve Next Steps in the Payments Improvement Journey

Federal Reserve

2017

Click to access other20170906a1.pdf

 

 

 

Strategies for Improving the U.S. Payment System

Federal Reserve

2015

Click to access strategies-improving-us-payment-system.pdf

 

 

 

Strategies for Improving the U.S. Payment System
Feb 2016 Progress Report

Fed Reserve

2016

Click to access usfed-criteria.pdf

 

 

Strategies for Improving the U.S. Payment System

Progress Report | January 2017

Federal Reserve

Click to access sips-progress-report-201701.pdf

 

 

 

Strategies for Improving the U.S. Payments System

Claudia Swendseid

2016

https://www.minneapolisfed.org/~/media/files/news_events/events/payments-swendseid.pdf?la=en

 

Strategies for Improving the U.S. Payment System

2015

http://aftweb.com/aws/AFT/asset_manager/get_file/110552

 

 

Making Payments Faster in the United States

Clearing House

2015

https://www.theclearinghouse.org/~/media/puertoricosamedayach2015/making%20payments%20faster%20in%20the%20us%20tim%20mills.pdf?la=en

 

 

 

The Clearing House RTP System “Back to The Future”: Emerging Payment Systems Legal and Regulatory Issues

2017

Click to access back_to_the_future_emerging_payment_systems_-_krebs.pdf

 

 

The Federal Reserve Faster Payments and Secure Payments Task Forces
2016 Smart Card Alliance Payments Summit

April 5, 2016

Click to access PACIFICA-7_TUE_445_AADLAND_Smart-Card-Alliance_Faster-and-Secure-Payments-Task-Forces_4-5-16.pdf

 

 

 

Understanding and Regulating Twenty-First Century Payment Systems: The Ripple Case Study

Marcel T. Rosner
Delaware Court of Chancery
Andrew Kang
University of Michigan Law School

2016

https://repository.law.umich.edu/cgi/viewcontent.cgi?article=1239&context=mlr

 

 

 

US Retail Payment Instruments and Systems

Structure, Transformation & Public Policy

NY Fed Reserve

2015

Click to access 15-Retail-Payments-2015-Littman.pdf

 

 

 

Digital Payments Strategy for U.S. Retail Banks

Cognizant

2015

Click to access Digital-Payments-Strategy-for-U.S.-Retail-Banks-codex1358.pdf

 

 

US Real Time Payments Technology Playbook

The Clearing House

2016

https://www.theclearinghouse.org/-/media/tch/pay%20co/rtp/tch%20rtp%20technology%20playbook%20111716%20v1.pdf?la=en

 

 

 

16 in 2016: Trailblazing trends in global payments

McKinsey

2016

https://www.mckinsey.com/~/media/McKinsey/Industries/Financial%20Services/Our%20Insights/16%20in%202016%20Trailblazing%20trends%20in%20global%20payments/16%20in%202016%20Trailblazing%20trends%20in%20global%20payments_2015.ashx

 

 

 

Earthport

https://www.earthport.com/

 

 

 

Flavors of the Fast

A trip around the world in immediate payments

FIS

Click to access Flavours_Of_Fast.pdf

 

 

 

Global Trends and Developments in Instant payments

Edger Dunn

14th February, 2017

Click to access MPE-Track-A-Afternoon-Session-Global-Trends-and-Developments-in-Instant-Payments-Ulf-Geismar-14-02-2017-VF-1.pdf

 

 

 

EXECUTIVE GUIDE TO IMMEDIATE/ REAL-TIME PAYMENTS

Accenture

Click to access executive-guide-to-immediate-payments-tl.pdf

 

 

 

INTERNATIONAL PAYMENTS IN A DIGITAL WORLD

Accenture

2017

Click to access Accenture-International-Payments-Digital-World.PDF

 

 

 

Ripple as an Innovative Solution to the Ways We Pay

RIPPLE

Click to access candian_comment_letter.pdf

 

 

 

Instant revolution of payments?

The quest for real-time payments

Deutsche Bank

2015

Click to access Deutsche-Bank-Research-Instant-revolution-of-payments-The-quest-for-real-time-payments.PDF

 

 

 

Retail payments and the real economy

ECB

Iftekhar Hasan, Tania De Renzis
and Heiko Schmiedel

https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1572.pdf?0568b27871896eb01f54b0c4c40a8f63

 

 

 

NATIONAL RETAIL PAYMENT SYSTEMS TO SUPPORT FINANCIAL INCLUSION

AFI

2017

Click to access DFS_GN_29_stg4.pdf

 

 

 

Real-time payments for real-time banking
How banks can seize the full opportunities of immediate payments

Accenture

2015

Click to access Accenture-Banking-Realtime-Payments-Realtime-Bank.pdf

 

 

 

The New Payments Platform: Fast-Forward to the Future

Cognizant

Click to access the-new-payments-platform-fast-forward-to-the-future-codex1299.pdf

 

 

 

24/7 Domestic Real-time Payments

SWIFT

Click to access 16577_Expl1_SWIFT2020_2.pdf

 

 

Innovations in retail payments

Report of the Working Group on Innovations in Retail Payments

BIS

May 2012

Click to access d102.pdf

 

 

Fast payments – Enhancing the speed and availability of retail payments

BIS

November 2016

 

Click to access d154.pdf

 

Is a Global Real-Time Payment System Possible?

TCH

2015

https://www.theclearinghouse.org/research/2015/2015-q3-banking-perspectives/global-real-time-payments

Federal Reserve Payment Trends Update

2017

Federal Reserve Bank of Richmond

Click to access 04192017%20Retail%20Payments.pdf

 

 

 

THE IMPORTANCE OF THE RETAIL PAYMENT SYSTEM

Hal S. Scott

Nomura Professor and Director, Program on International Financial Systems Harvard Law School

December 16, 2014

 

https://dash.harvard.edu/bitstream/handle/1/16883011/hal-scott—mastercard-retail-payment-systems.pdf?sequence=1

 

Mechanism Design for Near Real-Time Retail Payment and Settlement Systems

Zhiling GUO
Singapore Management University, ZHILINGGUO@smu.edu.sg

Robert John UFFMAN
Singapore Management University, rkau man@smu.edu.sg

Mei LIN
Singapore Management University, mlin@smu.edu.sg

Dan MA

2015

 

http://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=3494&context=sis_research

 

 

 

2017 Advanced Payments Report

Edgar Dunn & Company

2017

http://edgardunn.com/2017/06/2017-advanced-payments-report/

Bank of Finland’s Payment And Settlement System Simulator (BoF-PSS2)

Bank of Finland’s Payment And Settlement System Simulator (BoF-PSS2)

 

From Payment and Settlement System Simulator

BOF-PSS2

The Bank of Finland provides a simulator called BoF-PSS2 for replicating payment and securities settlement systems. The simulator is adaptable for modelling multisystem setups that can be a combination of payment, securities settlement systems and CCP’s. The simulator is known to be unique and the first of its kind. Since its launch in 2002 it has been distributed to more than 90 countries and has contributed to numerous studies and research papers.

The simulator can be used to fulfill some of the regulatory requirements stated in the PFMI’s and BCBS requirements such as identifying the liquidity risks inpayment systems. Here under are topics the simulator can be used for:

  • Settlement, liquidity and credit risks in FMI’s
  • Systemic Risks and Counterparty risks in FMI’s
  • Identification of critical counterparts
  • Policy change impact evaluation
  • Network analysis
  • Liquidity dependency analysis
  • Relationship analysis of Monetary policy and liquidity needs for settlement of payments
  • Evaluation of sufficiency of liquidity buffers and margins
  • System merger effects on liquidity needs
  • System performance benchmarking
  • Netting algorithm testing and development
  • System development and prototyping

In comparison to static calculations of indicators, the simulation results naturally incorporate network (or systemic) effects rising from the payments flows and the technical properties of the infrastructures themselves. The results obtained from simulations are directly interpretable and have a self-evident meaning which is not always the case with all indicators. The results can directly be used for risk management purposes for example when evaluating the sufficiency of liquidity buffers and margins. Computer simulations take advantage of using the available information in full without losing micro-level information due to indicator aggregations.

The simulator is freely available for research purposes, and has already been introduced in numerous countries. It is possible to tailor and adapt the simulator to specific payment systems. Several adaptations of the simulator have already been made, eg. for TARGET2. The simulator team provides trainings, consultation and tailored adaptations which are priced for cost recovery. The training course aims at providing necessary skills for efficient use of BoF-PSS2 with hands on computer class exercises. It also presents numerous examples from real studies where the tool has been used. For more details see the training course outline. Minimum attendance to the session is four participants.

Basically, trainings are organised upon demand and it is also possible to order a training course to be held onsite outside the proposed dates.

 

From Payment and Settlement System Simulator / Product Page

product_en_144ppi

From Payment and Settlement System Simulator / Documentation page

The Bank of Finland Payment and Settlement System Simulator, version 2 (BoF-PSS2), is a powerful tool for payment and securities settlement system simulations. The simulator supports multiple system structures and various settlement models.

The simulator is designed for analysing liquidity needs and risks in payment and settlement systems. Special situations, often difficult or impossible to test in a real environment, can be readily simulated with BoF-PSS2. Thus, users can study how behavioral patterns and changes in policy and conventions impact the payment and settlement systems and participants. The efficiency of gridlock-resolution and liquidity-saving measures can be analyzed as well.

The application is divided into three sub-systems:

  • Input sub-system for preparing and defining the input data,
  • Execution sub-system for running simulations,
  • Output sub-system for basic analyses of simulation results.

Different settlement logics are implemented into separate algorithms. To replicate specific systems, appropriate algorithms must be selected with appropriate parameters. Different algorithm combinations can be used to replicate a large number of current and potential settlement conventions and structures. Real-time gross settlement systems (RTGS), continuous net settlement systems (CNS), deferred net settlement systems (DNS) and hybrid systems can be implemented with the simulator as well as securities settlement and multicurrency systems. Inter-system connections and bridges make it possible to define multi- system environments consisting of various types of interdependent systems. E.g. it is possible to replicate the interaction of RTGS and securities settlement systems.

Advanced users of BoF-PSS2 can define and build their own user modules/algorithms and expand the basic features of the simulator to analyse new types of settlement processes. It is also possible to implement agent based modeling by adding algorithms replicating the participants’ behavior and decision making to control and alter the flow of submitted transactions. As a later addition, the simulator also has a network analysis module for generating networks and network indicators from either input data or results of simulations.

BoF-PSS2 has an easy to use graphical user interface. It is also possible to automate the use of the simulator via its command line interface (CLI).

 

From Payment and Settlement System Simulator / Product Page

TARGET2 SIMULATOR

A separate TARGET2 simulator version of BoF-PSS2 has been developed and delivered for the European System of Central Banks. It is based on the same basic software architechture and features of BoF-PSS2. Additional features are implemented as separate algorithm modules which replicate the proprietary algorithms of actual TARGET2 system. It is used by Eurosystem for quantitative analyses and numerical simulations of TARGET2.

TARGET2 simulator has been jointly delivered by Suomen Pankki (Bank of Finland) and the 3CB (Banca d’Italia, Deutsche Bundesbank, Banque de France) based on a decision of ECB Governing Council.

 

 

Key Terms

  • Liquidity Simulator
  • Payment System
  • Risk Management
  • Financial Stability
  • Cascades of Failures
  • Congestions and Delays
  • Financial Market Infrastructures
  • Payment Networks
  • Contagion
  • RTGS
  • Simulation Analysis
  • TARGET2
  • Intraday Payments

 

Key People

  • Harry Leinonen
  • Tatu Laine
  • Matti Hellqvist
  • Kimmo Soramäki

 

 

Key Sources of Research:

 

Payment and Settlement System Simulator – A tool for analysis of liquidity, risk and efficiency

Bank of Finland Payment and Settlement Simulator

2006

 

Click to access 2006_11a_hl.pdf

 

 

BoF-PSS2 Technical structure and simulation features

Harry Leinonen

Click to access 20031519seminarpresentationleinonen2.pdf

 

 

Payment and Settlement System Simulator

https://www.suomenpankki.fi/en/financial-stability/bof-pss2-simulator/

https://www.suomenpankki.fi/en/financial-stability/bof-pss2-simulator/product/

https://www.suomenpankki.fi/en/financial-stability/bof-pss2-simulator/events/

 

 

Publications

https://www.suomenpankki.fi/en/financial-stability/bof-pss2-simulator/publications/

 

 

Quantitative analysis of financial market infrastructures: further perspectives on financial stability

E50

https://helda.helsinki.fi/bof/handle/123456789/13990

 

 

Diagnostics for the financial markets : computational studies of payment system : Simulator Seminar Proceedings 2009-2011

E45

https://helda.helsinki.fi/bof/handle/123456789/9381

 

 

Simulation analyses and stress testing of payment networks

E42

https://helda.helsinki.fi/bof/handle/123456789/9369

 

 

Simulation studies of liquidity needs, risks and efficiency in payment networks : Proceedings from the Bank of Finland Payment and Settlement System Seminars 2005-2006

E39

https://helda.helsinki.fi/bof/handle/123456789/9370

 

 

Liquidity, risks and speed in payment and settlement systems : a simulation approach

E31

https://helda.helsinki.fi/bof/handle/123456789/9355

 

 

Simulation Analysis and Tools for the Oversight of Payment Systems

 

Click to access 2012-12-vigilanciasistemasdepago-10.pdf

 

 

Utilizing the BoF simulator in quantitative FMI analysis

Tatu Laine

Banco de México

15.10.2014

 

Click to access %7B15D9D1D3-D455-1E98-6FA6-AFB3B30C4ACB%7D.pdf

 

 

TARGET2 Simulator

Click to access target_newsletter_7_2013.pdf

 

 

Intraday patterns and timing of TARGET2 interbank payments

Marco Massarenti

Silvio Petriconi

Johannes Lindner

 

Click to access 0b5a0eb557b478843891449221c6ed2e7502.pdf

 

 

Communities and driver nodes in the TARGET2 payment system

Marco Galbiatiy, Lucian Stanciu-Vizeteuz

June 17, 2015

 

Click to access 5593d39c08ae1e9cb42a1904.pdf

 

 

Payment Delays and Contagion

Ben Craig† Dilyara Salakhova‡ Martin Saldias§

November 14, 2014

Click to access CraigSalakhovaSaldias_2014_preview.pdf

 

 

Federal Reserve Bank of New York Economic Policy Review

September 2008 Volume 14 Number 2

Special Issue: The Economics of Payments

 

Click to access EPRvol14n2.pdf

 

 

Contagion in Payment and Settlement Systems

 

Matti Hellqvist

2006

 

Click to access mh.pdf

 

 

Applications of BoF-PSS2 simulator and how to use it in agent based models

 

Click to access Hellqvist(presentation)_ABM-BaF09.pdf

 

 

Simulation and Analysis of Cascading Failure in Critical Infrastructure

Robert Glass, Walt Beyeler, Kimmo Soramäki, MortenBech and Jeffrey Arnold

Sandia National Laboratories, European Central Bank,  Federal Reserve Bank of New York

Click to access 07-glass_pres.pdf

 

 

Simulation analysis of payment systems

 

Kimmo Soramäki

2011

Click to access 2011-11-vigilancia-07.pdf

 

 

Simulating interbank payment and securities settlement mechanisms with the BoF-PSS2 simulator

Harry Leinonen

Kimmo Soramäki

 

2003

 

Click to access bof_dp_2303.pdf

 

Understanding Global OTC Foreign Exchange (FX) Market

Understanding Global OTC Foreign Exchange (FX) Market

 

OTC FX Market is biggest market in the world.  About 5.1 trillion USD are traded in this market every day.

Originally all FX transactions were for cross border trades in goods and services, but later on developments led to speculative investments activities in foreign currencies.

OTC FX Market is decentralized.  It means there is no exchange on which currencies are traded. Interbank market in FX is among dealer banks.  Dealer Banks are the biggest global banks.  Top 10 banks who trade in FX have total trade volume of 67%.

USD is the dominant currency in global FX market.  UK is the biggest location for FX trading followed by USA and Singapore.  Hong Kong SAR and Japan are other important FX trading centers.

Markets operate 24/7 unlike other financial markets which open and close at certain times.

Bank of International Settlement publishes its triennial survey of global FX markets.  2016 survey showed 5.1 trillion USD/day FX turnover down from 5.3 T/Day back in 2013 survey.  Markets peaked in September of 2014 at 6.5 Trillion USD/day.  Since then the trend is declining.  De-risking by global banks, decline in global trade are cited as main reasons for decline.  Will attempt to understand this issue at a later date.

 

Following Issues emerge from this post but are not discussed here in detail.

  • Retail FX Market
  • Algorithmic Trading
  • Non Bank High Frequency Liquidity Providers
  • FX  Prime Brokerage
  • Financial Stability in OTC Market – Case for CCP
  • China RMB Internationalization
  • Clearing and Settlement in FX Markets – CLS Bank and CLSNet
  • Liquidity for FX trades – Funding and Market Liquidity

 

Highlights from the 2016 Triennial Survey of turnover in OTC foreign exchange markets:

  •   Trading in foreign exchange markets averaged $5.1 trillion per day in April 2016. This is down from $5.4 trillion in April 2013, a month which had seen heightened activity in Japanese yen against the background of monetary policy developments at that time.
  •   For first time since 2001, spot turnover declined. Spot transactions fell to $1.7 trillion per day in April 2016 from $2.0 trillion in 2013. In contrast, the turnover of FX swaps rose further, reaching $2.4 trillion per day in April 2016. This rise was driven in large part by increased trading of FX swaps involving yen.
  •   The US dollar remained the dominant vehicle currency, being on one side of 88% of all trades in April 2016. The euro, yen and Australian dollar all lost market share. In contrast, many emerging market currencies increased their share. The renminbi doubled its share, to 4%, to become the world’s eighth most actively traded currency and the most actively traded emerging market currency, overtaking the Mexican peso. The rise in the share of renminbi was primarily due to the increase in trading against the US dollar. In April 2016, as much as 95% of renminbi trading volume was against the US dollar.
  •   The share of trading between reporting dealers grew over the three-year period, accounting for 42% of turnover in April 2016, compared with 39% in April 2013. Banks other than reporting dealers accounted for a further 22% of turnover. Institutional investors were the third largest group of counterparties in FX markets, at 16%.
  •   In April 2016, sales desks in five countries – the United Kingdom, the United States, Singapore, Hong Kong SAR and Japan – intermediated 77% of foreign exchange trading, up from 75% in April 2013 and 71% in April 2010.

 

Interbank (OTC) Market Infrastructure and Institutions

  • Banks
  • Non Banks
  • Exchanges

 

Top 10 Banks in FX

 

fx16

 

From All change in the 2016 Euromoney FX rankings

Citi holds on to the top ranking in this year’s Euromoney foreign exchange rankings, but elsewhere there have been unprecedented shifts.

Structural changes to the markets, management upheaval among many big banks, new non-bank entrants and lack of volumes and volatility have seemingly levelled the playing field among the industry’s biggest firms.

The biggest change in the rankings this year is the decline of the combined market share of the top five global banks. Their market share in the survey peaked in 2009 at 61.5% and was still above 60% as recently as 2014.

This year the top five banks account for just 44.7% of total volume. The hopes of many global FX heads and their investment bank bosses – that the share of the big banks would rise inexorably as the market became more automated and that they would be able to benefit from oligopolistic pricing power as a result – now seem like distant and deluded dreams.

One FX veteran tells Euromoney that the decline of the top five banks’ combined market share “is exactly what the regulators would want in a market they continue to keep a very close eye on.”

While the market share of the top 10 FX houses overall also declines, from over 75% last year to just 66% this year, the fall is entirely due to the performance of the top five banks. The banks ranked from sixth to 10th place overall produced a combined market share of 22%, roughly in line with the last five years of the survey and considerably higher than the 14% they managed in 2008.

Citi actually extends its lead over the second-placed bank in the survey, which market participants regard as the most accurate reflection of client-based activity in the global foreign exchange markets, to more than four percentage points – even though the bank’s own market share declined by more than three percentage points, from 16.11% in the 2015 survey to 12.91% of trading in 2016.

That winning market share is the lowest for any top-ranked bank in the survey since UBS won the survey in 2004.

Citi maintained its leadership overall in important product areas such as spot/forwards and swaps, as well as in the key real money and bank client categories. It rises one place this year to win in corporates and overall electronic market share, although it falls to third overall for options.

One big story in this year’s rankings is the decline of Deutsche Bank. It was once the undisputed leader in global foreign exchange, losing the top position in the Euromoney rankings three years ago after nearly a decade of dominance.

While new group CEO John Cryan has gone out of his way both publicly and privately to describe the FX business as one of the beleaguered bank’s crown jewels, the days when Deutsche Bank was able to secure an overall market share of more than 20% (as recently as 2009) are long gone.

In the latest set of rankings, Deutsche falls from second to fourth place overall: its market share of 7.86% is almost half what it was a year ago. Deutsche’s decline is widespread, and competitors say has been driven in part by the bank cutting back on the number of clients it covers. It falls from second to fifth in spot/forward; from second to eighth among real money clients and loses top spot among bank clients. It remains the leading overall options house.

Perhaps the most surprising fall of all is in its overall electronic market share. Deutsche’s Autobahn system revolutionized global FX trading and in banner years accounted for more than a quarter of all electronic trading. This year, Deutsche can only manage fourth place in e-market share, from holding the top ranking last year, and its share has fallen from 17.5% to 8.73%.

Two banks overtake Deutsche to move into the top three overall, but the similarities end there: the two banks in question have very different recent histories in global foreign exchange.

JPMorgan jumps to second place in the survey, with a market share of 8.77%, up from fourth place with 7.65% last year. For many years, competitors have said that JPMorgan has failed to punch its weight in FX; it has typically ranked outside the top five overall banks in the Euromoney survey for the last decade. Those accusations have less weight now, even though they have been replaced by rumours about the bank’s competitive pricing strategy.

The US bank rises across a range of categories. Its most notable successes are winning the leveraged fund category with a lead over second-placed UBS of almost eight percentage points and a market share of more than 18%; and jumping from fifth to second place in overall electronic trading. JPMorgan’s one poor ranking is now in options, where it comes a lowly eighth.

UBS returns to the top three global FX banks overall this year. A winner back in 2004, it has been outside the top three since 2009, and last challenged for the top spot overall a year earlier, when its market share of almost 16% was only beaten by Deutsche. Last year it fell to fifth place, its worst performance in a decade, with a market share of 7.3%.

Given the bank’s leadership has spent the last few years de-emphasizing the role of its investment bank, some competitors believed UBS was on a long, slow decline in FX.

But, quietly and consistently, UBS’s markets business has been recalibrating to the new capital and markets environment, as well as maintaining a commitment to best-in-class electronic platforms. Its overall market share rises to 8.76%; and it breaks into the top three overall in spot/forward, swaps, electronic market share and for bank clients. Like JPMorgan, it is a laggard in options, where it ranks seventh.

JPMorgan and UBS have one other important thing in common: while other banks have lost entire benches of senior management from their FX teams in recent years, JPMorgan and UBS have been relatively stable.

At the former, Troy Rohrbach has overseen the FX business since 2005 (he now also runs rates and public finance globally); at UBS, Chris Murphy and George Athanasopoulos, the global co-heads of FX, rates and credit, both joined the bank more than five years ago and have jointly run the division since 2013. Leadership, it seems, does count.

Bank of America Merrill Lynch continues its steady rise up the rankings of recent years, from a nadir of 12th place from 2009 to 2012. It finally breaks into the top five global FX houses overall, up from sixth place last year.

BAML jumped up the rankings into the top five for corporates and real money accounts, and gained ground in both swaps and options – in the latter, it ranks second globally. But BAML still has work to do in the electronic market, where its overall ranking fell from sixth to seventh place. Other US banks also performed well.

Goldman Sachs rose from ninth to seventh overall and Morgan Stanley jumped three places to break back into the top 10.

It has not been a good year in FX for Barclays. Perhaps the bank’s decision to not have a global head of foreign exchange has backfired. The UK-cum-transatlantic bank dropped from third place overall to sixth, and its market share from 8.11% to 5.67%.

Barclays slipped three places to seventh in spot/forward, four places to seventh in swaps and three places to ninth in options. Among client groups, its biggest reversal came among real money accounts, falling from fourth place last year to outside the top 10.

HSBC has also had a disappointing year, falling from seventh to eighth place overall. It also loses its top ranking among corporates last year, falling out of the top five of that client category altogether. Electronic trading remains the bank’s weakest link, and may even be getting weaker, as the bank falls to ninth place in overall e-market share.

New phenomenon

Banks have always risen and fallen in the Euromoney rankings over the last 40 years, but this year sees a new phenomenon – the advent of the non-bank liquidity provider. Leading the way is XTX Markets, a spin-off of GSA Capital, whose co-CEO Zar Amrolia was a frequent winner of the Euromoney FX rankings in his previous role as head of Deutsche Bank’s FX business.

In its first year of eligibility, the spot-only XTX makes a stunning debut: ninth place in the overall rankings with a market share of 3.87%; fourth in spot/forwards; fifth for bank clients; third for FX trading platforms; fifth overall for e-market share; and third for electronic trading of spot, ahead of Deutsche Bank with a market share of more than 10%.

XTX is the leader, but not the only non-bank entrant to the survey. Tower Research Capital, Jump Trading, Virtu Financial, Lucid Markets and Citadel Securities all make the top 50 overall market share rankings.

XTX’s ninth place overall looks like a line in the sand for the FX markets. The banks above it are, for the most part, the remaining price-makers; the banks below often price-takers, with the ability to make markets in particular currencies or products.

Many of the banks ranked outside the top 10 overall this year are understood to be sourcing liquidity from non-bank providers such as XTX, Tower and Jump. They look set to gain more market share in the future, helped by new technology, more defined business models and a lower-cost infrastructure base than the traditional FX banks. They could look to build capability in forwards and other markets in the near future.

Among multi-dealer platforms, Thomson Reuters – through its FXall service – remains the clear leader with a 30% market share, although its margin over second-ranked FXConnect almost halved. The big riser among MDPs was third-ranked HotspotFXi, which increased its market share from less than 7% to almost 18% this year.

Total volumes in the Euromoney FX survey came in at almost $95 trillion, while the number of votes held steady compared with last year at around 3,500 clients. That represents a volume fall of around 23% on last year, in line with market expectations.

 

 

Electronic FX platforms 

There are three types of trading platforms.

  • Interdealer
  • Multidealer
  • Singledealer

 

Trading platforms can be divided into three different types:

  • Inter-dealer electronic broking platforms. These platforms were developed in the 1990s and are regarded, according to the Bank for international Settlements (BiS, 2010), as the dominant source of interbank liquidity on the foreign exchange market. They mediate information on various market makers’ indicative prices. EBS and Reuters, based in London, are the two dominant platforms within this category.
  • Multi-bank platforms. These platforms are also known as multi-bank ECNs (electronic communication networks). They were created in the first decade of this century and resemble the previous category in that they mediate several market makers’ prices. one difference is that they have freer access regulations for market makers, which makes it easier for market makers to join these platforms. Another difference is that they are largely used outside the interbank market, which is to say by market participants that are not banks. The US platforms Fx All, currenex, Hotspot Fx, State Street and Fx connect are examples of this type of trading platform. There are also platforms that provide standardised algorithmic trading functions as a service. currenex is one such platform.
  • Single-bank platforms. This type of platform is run by an individual bank. The platform mediates only the individual bank’s own prices for various currency pairs, unlike the trading platforms discussed above, which mediate several market makers’ prices. in Sweden, SeB has a platform of this type, SeB Trading Station. other examples of banks with such platforms are JP Morgan, Deutsche Bank and citibank.

 

A. Multi Dealer Platforms

J.P. Morgan has significantly increased its footprint on these platforms over the past couple of years and now ranks first for penetration globally, followed closely by Citi. Bank of America Merrill Lynch, Deutsche Bank and HSBC round out the top five most prominent banks on MDPs.

B. Single Dealer Platforms

While multi-dealer systems are clearly on the rise, an average of more than 20% of trading volume of banks and hedge funds is still executed on single-bank platforms. Barclays, Citi and Deutsche Bank are the clear top three most actively used single-dealer platforms globally.

“Proprietary platforms give banks a means of retaining profitable trading volumes, so dealers are expanding these systems to provide a range of liquidity choices that enable clients to access the market in a variety of ways, including disclosed and non-disclosed liquidity, agency and principal trades, and links to exchange-based execution,” says Greenwich Associates Managing Director Woody Canaday.

C. Algorithmic Trading

Dealers are also in the early days of what promises to be an all-out arms race in algorithmic trading. Currently only 13% of top-tier FX customers use algorithmic trading models. However, that share approaches one-quarter among the market’s biggest buy-side participants and 30% among hedge funds.

Two trends suggest that algorithmic trading is gaining traction in FX. First, market participants that use algo-rithmic models are tapping an expanding number of dealers for algorithms. Second, current users are routing growing shares of trading volume through the models, from 25% in 2014 to 28% in 2015. Hedge funds that trade algorithmically now use these models for about half of total trading volume.

 

A.  Inter-dealer electronic broking platforms

  • Reuters Dealing 3000
  • ICAP EBS

EBS is the primary trading venue for EUR/USD, USD/JPY, EUR/JPY, USD/CHF, EUR/CHF and USD/CNH.

Thomson Reuters Matching is the primary trading venue for commonwealth (AUD/USD, NZD/USD, USD/CAD) and emerging market currency pairs.

 

ICAP EBS

EBS was created by a partnership of the world’s largest foreign exchange (FX) market making banks in 1990 to challenge Reuters’ threatened monopoly in interbank spot foreign exchange and provide effective competition. By 2007, approximately US$164 billion in spot foreign exchange transactions were traded every day over EBS’s central limit order book, EBS Market.

EBS’s closest competitor is Reuters Dealing 3000 Spot Matching. The decision by an FX trader whether to use EBS or Thomson Reuters Matching is driven largely by currency pair. In practice, EBS is the primary trading venue for EUR/USD, USD/JPY, EUR/JPY, USD/CHF, EUR/CHF and USD/CNH, and Thomson Reuters Matching is the primary trading venue for commonwealth (AUD/USD, NZD/USD, USD/CAD) and emerging market currency pairs.

EBS initiated e-trading in spot precious metals, spanning spot gold, silver, platinum and palladium, and remains the leading electronic broker in spot gold and silver through the Loco London Market.

They were the first organisation to facilitate orderly black box or algorithmic trading in spot FX, through an application programming interface (API). By 2007 this accounted for 60% of all EBS flow.

In addition to spot FX and Precious Metals, EBS has expanded trading products through its venues to include NDFs, forwards and FX options. It has also increased the range of trading style to include RFQ and streaming in disclosed and non-disclosed environments.

EBS was acquired by ICAP, the world’s largest inter-dealer broker, in June 2006. ICAP said that the acquisition would combine EBS’ strengths in electronic spot foreign exchange with ICAP’s Electronic Broking business to create a single global multi-product business with further growth potential and significant economies of scale. It went on to say that would provide customers with more efficient electronic trade execution, reduced integration costs and give access to broad liquidity across a wide product range.[1]

In 2014, EBS merged with BrokerTec – a leading service provider in the fixed income markets – to form EBS BrokerTec. BrokerTec’s offering comprises trading solutions for many US and European fixed income products including US Treasuries, European Government Bonds and European Repo.

EBS BrokerTec is now recognised as a market-leading e-trading technology and solutions provider, offering access to multiple execution options and diverse, valuable liquidity across the FX and fixed income markets.

 

  • ICAP EBS is one of the world’s premier inter-dealer brokers with average daily transaction volume in excess of USD 2.3 trillion.
  • ICAP’s electronic EBS platform provides the primary market of natural interest for more than 2800 global FX, Precious Metals and NDF traders.
  • ICAP EBS global access platform delivers anonymous, transparent and reliable FX Liquidity.
  • Authoritative real-time and historical market data.
  • Available for clearing only. Relationship with EBS required.

 

B. Multidealer Platforms – FX ECNs

Since 1999, banks have been developing proprietary systems for their customers to trade foreign exchange and access research material over the internet. To trade with multiple banks online, customers therefore need to use a variety of authentication methods, websites and price request methods. Multi-bank platforms have evolved to allow customers to use a single website to request prices simultaneously from multiple banks and view research material online. Multi-bank platforms (also known as ECNs or electronic communication networks) offer significant advantages to customers, but fewer advantages to banks, and therefore active participation by banks in multi-bank platforms is driven largely by customer demand. However, for the banks it remains preferable for their customers to trade through bank proprietary systems as the banks avoid paying brokerage and customers are encouraged to focus only on the particular bank’s prices.

There are five main customer-facing FX ECNs:

FXall – founded by Bank of America, Credit Suisse First Boston, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley Dean Witter and UBS

Currenex – independent and venture backed by major market participants, e.g. Barclays Capital and Royal Dutch/Shell

FX Connect – owned by State Street

360T – independent and venture backed by financial and major private investors

Hotspot FXi – independent privately held venture capital-backed company

 

 

Currency Trading Shifts to Multi-Dealer Systems, Greenwich Says

Lananh Nguyen
July 14, 2015, 11:28 AM EDT

Currency investors are increasingly using electronic systems connected to multiple dealers as the market comes under greater scrutiny by regulators, according to Greenwich Associates.

Institutional investors and large corporations executed 49 percent of their foreign-exchange trading volumes on multi-dealer platforms last year, up from 45 percent in 2013 and 38 percent in 2008, the Stamford, Connecticut-based consultant said in a report. The increase comes as trading by traditional methods, such as phone, instant messaging and single-dealer platforms, has fallen.

“The FX ‘fixing scandal’ and related bank fines have already played a part in changing buy-side behavior,” wrote Kevin McPartland, head of research for market structure and technology at Greenwich, who co-authored the report based on interviews with more than 1,600 people participating in foreign-exchange markets globally.

Asset-management companies are boosting electronic trading as regulatory scrutiny discourages banks and dealers from providing “market color” to clients to avoid any perception of impropriety, according to Greenwich. The platforms are also becoming more popular as banks become less active in currency markets because of rising capital requirements.

“Asset managers have proactively worked to beef up internal policies to both ensure maximum returns for the impacted funds and to reassure customers, such as pension funds and sovereign wealth funds, that they’re getting the best the market has to offer at that moment in time,” McPartland wrote.

Thomson Reuters Corp.’s FXall platform had the largest volume-weighted share of trading last year at 21 percent, according to Greenwich. It’s followed in popularity by 360T, State Street Corp.’s Currenex, Bloomberg LP’s FXGO and FX Connect.

 

Dealer-to-client platforms

  • State Street FX Connect
  • Thomson Reuters FXall
  • State Street Currenex
  • CBOE/BATS Hotspot FX
  • Bloomberg FXGO

 

fx11

 

C. Single Dealer FX Trading Platforms

  • Barclays BARX
  • Citi Velocity
  • Deutsche Autobahn
  • Morgan Stanley Matrix
  • UBS Neo

 

Best Single-Dealer FX Trading Platform

Financial News is delighted to announce the . The winners will be announced at a gala dinner in London in October.

Here are the nominees in the category of Best Single-Dealer FX Trading Platform:

Barclays BARX
The BARX platform remains a dominant force among single-dealer platforms, with streaming prices in more than 80 currencies and 480 currency pairs, with a wide range of products available. Following the launch of BARX Gator, a liquidity aggregator, Barclays now gives clients access to the increasingly popular agency-style of execution.

Citi Velocity
Since its relaunch in 2012, Citi Velocity 2.0 has become a leading source of single-bank liquidity in FX cash, options and rates trading. Citi has also led the adoption of mobile and tablet technology in this space, and has focused its efforts with Velocity on delivering speed, lower transaction costs, cross-asset information, cross-asset trading, deep liquidity, and desktop efficiency.

Deutsche Bank Autobahn
Deutsche Bank has channelled significant resources into its electronic trading franchise in recent years, and Autobahn remains a major player across asset classes. In FX, Autobahn provides a single blotter for trades executed via both voice and electronic channels. Users can thus benefit from a combined view and take greater control over their portfolios.

Morgan Stanley Matrix
While not a top-tier bank in FX, Morgan Stanley has sought to add unique value with its Matrix platform. That has been achieved in part through execution and post-trade services, but also through the bank’s quantitative solutions and innovations group, which develops unique analytical tools to help users make more informed trading and investment decisions.

UBS Neo
Launched in 2013, UBS Neo is a cross-asset class platform providing a single point of access with a strong user experience, re-establishing the Swiss bank as a significant player in electronic trading. UBS Neo FX covers 550 currency pairs, with access to cash, NDFs and options available through the platform.

 

Trends in use of Electronic Platforms

fx10

 

From The $4 trillion question: what explains FX growth since the 2007 survey?

Electronic execution methods are transforming the FX market The greater activity of all three of the above-mentioned customer types – highfrequency traders, banks as clients and retail investors – is closely related to the growth of electronic execution methods in FX markets. Greenwich Associates estimates that more than 50% of total foreign exchange trading volume is now being executed electronically (Graph 3, left-hand panel).

Electronic execution methods can be divided into three categories: electronic brokers, multi-bank trading systems and single-bank trading systems. Electronic brokers were introduced in the inter-dealer FX market as early as in 1992. For customers, however, the main channel for trading continued to be direct contact with dealers by telephone. In the rather opaque and fragmented FX market of the 1990s, barriers to entry were high and competition was limited. Customers typically paid large spreads on their FX trades.

The first multi-bank trading system was Currenex, which was launched in 1999. By providing customers with competing quotes from different FX dealers on a single page, Currenex increased transparency, reduced transaction costs and attracted a growing customer base. State Street’s FXConnect, which had been launched in 1996 as a single-bank trading system servicing only State Street’s clients, opened up in 2000 and became a multi-bank ECN.

In response to the increased competition, top FX dealers launched proprietary single-bank trading systems for their clients, such as Barclays’ BARX in 2001, Deutsche Bank’s Autobahn in 2002 and Citigroup’s Velocity in 2006. According to data provided to the BIS, daily average trading volumes on the top single-bank trading systems have increased by up to 200% over the past three years.

 

 

Market Participants in

  • Interbank Market
  • Retail Market

Forex Market Players

Forex Market

The Forex market is an international over-the-counter market (OTC). It means that it is a decentralized, self-regulated market with no central exchange or clearing house, unlike stocks and futures markets. This structure eliminates fees for exchange and clearing, thereby reducing transaction costs.

The Forex OTC market is formed by different participants – with varying needs and interests – that trade directly with each other. These participants can be divided in two groups: the interbank market and the retail market.

The Interbank Market

The interbank market designates Forex transactions that occur between central banks, commercial banks and financial institutions.

Central Banks – National central banks (such as the US Fed and the ECB) play an important role in the Forex market. As principal monetary authority, their role consists in achieving price stability and economic growth. To do so, they regulate the entire money supply in the economy by setting interest rates and reserve requirements. They also manage the country’s foreign exchange reserves that they can use in order to influence market conditions and exchange rates.

Commercial Banks – Commercial banks (such as Deutsche Bank and Barclays) provide liquidity to the Forex market due to the trading volume they handle every day. Some of this trading represents foreign currency conversions on behalf of customers’ needs while some is carried out by the banks’ proprietary trading desk for speculative purpose.

Financial Institutions – Financial institutions such as money managers, investment funds, pension funds and brokerage companies trade foreign currencies as part of their obligations to seek the best investment opportunities for their clients. For example, a manager of an international equity portfolio will have to engage in currency trading in order to buy and sell foreign stocks.

The Retail Market

The retail market designates transactions made by smaller speculators and investors. These transactions are executed through Forex brokers who act as a mediator between the retail market and the interbank market. The participants of the retail market are hedge funds, corporations and individuals.

Hedge Funds – Hedge funds are private investment funds that speculate in various assets classes using leverage. Macro Hedge Funds pursue trading opportunities in the Forex Market. They design and execute trades after conducting a macroeconomic analysis that reviews the challenges affecting a country and its currency. Due to their large amounts of liquidity and their aggressive strategies, they are a major contributor to the dynamic of Forex Market.

Corporations – They represent the companies that are engaged in import/export activities with foreign counterparts. Their primary business requires them to purchase and sell foreign currencies in exchange for goods, exposing them to currency risks. Through the Forex market, they convert currencies and hedge themselves against future fluctuations.

Individuals – Individual traders or investors trade Forex on their own capital in order to profit from speculation on future exchange rates. They mainly operate through Forex platforms that offer tight spreads, immediate execution and highly leveraged margin accounts.

 

Trend Towards Exchanges ?

Only 200 billion daily turnover using exchanges

 

Exchanges are staking out the $5tn a day global currency market as part of their latest efforts to tap this lucrative and booming sector that has long been dominated by global banks.

This week Bats Global Markets, the US’s second largest equities exchange, fired the latest salvo by offering three months of free trading on its forthcoming London-based Hotspot currency trading platform, the centrepiece of Bats’ $365m purchase of the venue from KCG Holdings in March.

That came only days after Deutsche Börse, Europe’s largest exchanges operator, bought 360T, one of the world’s largest currency trading networks, for €725m.

Their moves are audacious attempts to break into the world’s most liquid over-the-counter market, where a notional $5.3tn a day is traded in cash, or spot, and derivatives trades. It is dominated by banks, which continue to make billions of dollars in profits from it each year. Exchanges have generally been unable to establish a presence in this and other OTC markets, despite repeated attempts to do so.

In currencies, Chicago’s CME Group dominates futures trading, reflecting how it seized the terrain in the 1970s when the present era of floating foreign exchanges began. Markets in Moscow, Brazil and India also trade local currency, but of that $5.3tn total, global exchanges account for just $200bn according to Aite Group, a financial markets consultancy.

However, cracks are appearing in the market edifice, brought on by a combination of unlawful activity by banks, deep structural change and the emergence of cheap and reliable technology that has allowed alternative ways of trading to emerge.
“The banks as a whole will continue to have a substantial piece of the pie but the regulations will force them to let go of pieces of it,” says Javier Paz, an analyst at Aite Group.

Waves of post financial crisis regulation have accelerated change in equity and interest rate swaps markets, but global policymakers largely left the currency market alone.

However, the currency industry is mopping up after two of its own existential crises — the Wm/Reuters benchmark rate rigging scandal, which resulted in multibillion-dollar fines for banks, and the sudden move by the Swiss franc in January when the national central bank abolished its ceiling against the euro.

Market observers say that end users such as corporations, hedge funds and asset managers are now taking far more care with their orders, and they have the tools to do it, turning the banks more into agency brokers.

“End users are getting used to technology where they have a full view of the market. They are accessing more markets than they could ever do 10 years ago,” says Chris Concannon, chief executive of Bats Global Markets.

At the same time, incidents like the Swiss move have also raised the alarm among banks. By the end of that day in January some smaller retail brokers faced ruin but even several larger broker-dealers such as Barclays, Citigroup and Deutsche Bank nursed tens of millions of dollars in losses. That has also left the market seeking as many different venues as possible where they can offset their customers’ trades.
“People are not holding risk like they were a year ago. A year ago they would warehouse that risk and wait for another customer to come along,” says Mr Concannon.

Not helping matters is how foreign exchange market liquidity is highly concentrated among just a handful of trading pairs, known as the G10. Into the gap on the other side of the trade are stepping high-frequency traders such as the US’s Virtu Financial. It is one of the world’s largest currency market makers.

“Clients that are trading on anonymous platforms by definition have no insight into whom they are trading with, and as such are likely interacting with non-bank liquidity providers more often than they know,” notes a report by Greenwich Associates last month.

However, even if the diagnosis is right, exchanges still face tough competition from well-established platforms not run by banks, such as Thomson Reuters, Bloomberg FXGO and ICAP’s EBS. These make up the majority of the $1.1tn average daily volume traded on electronic FX platforms and provide a role as a more centralised price benchmark independent of banks.

Bats, which has targeted London because it is the world’s main location for forex trading, will aim to provide a reliable venue for pricing and take more trading volume from the 220 banks, asset managers, hedge funds, dealers and retail brokers signed up to the venue.

Deutsche Börse sees 360T as a key part of its growth strategy, using it as a way to sell market data and develop futures, FX forwards and swaps trading to boost its Eurex derivatives business. But it is trading network, not an exchange-like central limit order book.

Critically, OTC markets are historically highly resistant to encroachment from exchanges and some see little sign of that changing.

The head of one currency trading platform says: “I don’t see any signs of moving to an exchange model. I don’t see a slam dunk here, I see some desperate buyers looking for a growth story.”

OTC FX trading becomes ‘exchange-like’

Thursday, April 21, 2016

The acquisition of trading platforms Hotspot and 360T by Bats Global Markets and Deutsche Börse respectively last year were bold statements of intent by exchange operators to grab a larger chunk of the trillions of dollars traded in FX every day.

FXSpotStream

However, while consolidation in the venues supporting FX trading can be expected to result in exchanges becoming more involved in the FX space, any actual market structure change is likely to take a long time to materialize, according to

FXSpotStream CEO Alan Schwarz.

“The FX market continues to do a good job of addressing regulatory requirements and meeting the demands of market participants,” he says.

“We have seen a shift in the FX market looking to trade more on a disclosed basis. Our business has continued to see year-on-year growth because there is a move taking place from exchange-like anonymous trading to bilateral, fully disclosed trading between counterparties.

“Unlike trading on an exchange, the relationship via FXSpotStream is transparent and trading with the liquidity providing banks is on a fully disclosed basis.”

Nuances

Kevin McPartland, head of market structure and technology research at Greenwich Associates, believes that discussion of migration from OTC to exchange fails to take account of some of the nuances of the FX market and that the future lies in venues that support multiple trading models.

“There are a host of non-exchange electronic trading venues that allow clients to trade with each other in a variety of ways,” he says.

Kevin McPartland,
Greenwich Associates

On the question of whether there is a discernible shift towards fully disclosed trading, McPartland refers to both central limit order book (CLOB) and request-for-quote (RFQ) having their merits.

Despite observations made by the likes of TeraExchange – that order book platforms offer a democratic marketplace through transparent, firm and executable prices – corporates have remained reluctant to abandon the RFQ model.

The key question for CLOB platform providers continues to be not why market participants have migrated to alternative models but rather when they will be in a position to win new business for products that are most suited for order books, such as the benchmarks and plain vanilla products.

“RGQ offers liquidity on demand and identification of counterparties, whereas CLOB is faster and its anonymity can be helpful,” says McPartland.

“But we are now seeing demand for a solution that provides the best of both worlds by enabling trading in an order book format while maintaining a bilateral relationship with counterparties.”

Regulation

According to James Sinclair, CEO of MarketFactory, options and other derivatives are moving closer to an exchange model due to the direct effects of regulation and the increased costs of compliance in OTC markets.

He refers to CME FX options as an example, noting they are effectively options on futures.

“However, the situation in the spot market is more complicated – some aspects are becoming closer to an exchange, others are moving further away,” he says. “FX has its own market structure that is hard to fit into the OTC/exchange paradigm.”

James Sinclair,
MarketFactory

One of the fundamental reasons why the market does not become centrally cleared, says Sinclair, is that a cleared model carries the cost of insurance against both settlement and market risk.

“CLS insures you against settlement risk but not the market risk,” he adds. “Counterparts still find it cheaper to self-insure against market risk in case of a counterparty default than to pay the extra cost of a fully cleared solution.”

A senior platform source observes that growth in exchange-traded products has largely come from futures traders who have looked for diversification and added FX as another asset class.

“Very little business has moved from OTC – some banks have added exchanges as additional liquidity sources to cover risk, but that is really the only business that has crossed the divide,” the source says.

OTC has become more exchange-like in that the largest banks have continued to extend their internalization of flow, so each now runs an order book trading structure internally.

However, our source also points out that the tightening of credit has reduced the number of prime brokers in FX and costs have risen “so the nearest thing that the FX OTC market has to centralized clearing has actually reduced its volume and capacity”, he concludes.

 

Evolution of Information Exchange in Trading Platforms

  • Clients C
  • Voice Broker VB
  • Dealers D
  • Electronic Broker EB
  • Prime Broker PB
  • Retail Aggregator – RA
  • Multi Bank Trading – MBT
  • Single Bank Trading – SBT

 

fx12

 

fxtradingplatforms_1

 

Top 10 FX Turnover Locations

  • United Kingdom – 37%
  • United States – 20%
  • Singapore – 7.9%
  • Hong Kong SAR – 6.7%
  • Japan – 6.1 %
  • France – 2.8%
  • Switzerland – 2.4%
  • Australia – 1.9%
  • Germany – 1.8%
  • Canada – 1.3%

 

fx13

 

FX Instruments

  • Spot
  • FX Swap
  • Outright Forward
  • Currency Swaps
  • FX Options

 

fx3

 

fx4

fx15

 

 

Currencies and Currency Pairs

US Dollar is the king in FX market.  87.6% of transactions include USD on one side of currency pair.  Euro comes at second with 31%.  Japanese Yen is at 21.6%.  UK Pound Sterling is at 12.8%.  Chinese Yuan has moved to 4%.

fx

 

Currencies and Currencies Pairs

fx2

 

Trends in FX Market

  • Electronic Trading
  • Algorithmic Trading
  • High Frequency Trading
  • Non Bank Liquidity Providers (Market Makers)

 

Non Bank Electronic Market Makers

The diverse set of non-bank electronic market-makers includes

  • XTX Markets
  • Virtu Financial
  • Citadel Securities
  • GTS
  • Jump Trading.

These market-makers’ trading volume is captured in the Triennial because their trades are prime-brokered by a dealer bank. They are active on multilateral trading platforms, where they provide prices to banks’ e-trading desks, retail aggregators, hedge funds and institutional clients.

 

 

Chinese RMB – in FX Markets

  • Second in Trade Finance
  • Sixth in Payments
  • Eighth in FX Trading

 

Considering China’s Renminbi for International Settlement and Forex Trading

On October 1, 2016, the International Monetary Fund added China’s renminbi1 (RMB) to its elite Special Drawing Right (SDR) basket of currencies, alongside the U.S. dollar, euro, yen and British pound. IMF said the change reflected China’s progress in reforming its monetary, foreign exchange and financial systems, and improving its financial market infrastructure.2 Short-term, this means countries can now include RMB assets in official FX reserves, making it easier for them to meet IMF guidelines.3 Beyond this, however, inclusion in SDR is a symbol of RMB’s emergence as an international currency for forex trading and settlement of global business transactions.

RMB’s ongoing progress is an important consideration for businesses involved in any FX trading, and particularly for those whose business or currency trading activities involve China.

RMB Usage Grows in Trade and Currency Trading

IMF’s decision arrives in the context of growing RMB usage in trade finance, international payments, and forex trading. In trade finance, RMB is now second amongst world currencies, reflecting enormous international trade with China.4

Since 2013, according to the Society for Worldwide Interbank Financial Telecommunication’s (SWIFT’s) monthly Renminbi Tracker, China’s currency has risen from ninth to fifth worldwide in total payments sent and received by value, not counting payments by central banks. During that period, it surpassed the Swedish Krona (SEK), Canadian Dollar (CAD), Swiss Franc (CHF), Australian Dollar (AUD) and, briefly during summer 2015, even the yen (JPY). RMB use is growing slowly in some markets (such as France, Switzerland and Germany), and is rapidly accelerating in others (e.g., the United Arab Emirates).5 SWIFT has elsewhere reported that 50 countries now use RMB for 10 percent or more of their trade with China.6

Meanwhile, according to the Bank for International Settlements’ (BIS’) September 2016 Central Bank Survey, RMB has doubled its share of OTC currency trading transactions since 2013. It has surpassed Mexico’s peso to become the most active developing market currency on forex trading exchanges, and is now eighth in FX trading amongst all currencies worldwide. BIS’s report notes that “as much as 95 percent of renminbi trading volume was against the U.S. dollar.”7

Building the Global Infrastructure for an Internationalized Currency

To promote RMB usage abroad, the People’s Bank of China (PBOC) – China’s central bank – has authorized 18 new official clearing banks worldwide since December 2012. These have opened in locations including Toronto, Buenos Aires, London, Paris, Johannesburg, Sydney, Seoul and Taipei.8 In September 2016, PBOC announced the first RMB clearing and settlement services in the U.S.9

Domestically, China has eliminated a cap on the number of enterprises permitted to carry out cross-border RMB settlements. Any company permitted to engage in import-export business may settle in RMB, unless it appears on a “black name list” (in which case its transactions may be reviewed individually).10 Restrictions have also been relaxed on RMB-denominated investments by foreigners.11

As Yu Yongding of the Asian Development Bank Institute has pointed out, China is the only country that has ever decided on its own to make internationalizing its currency a national priority.12 In determining how far RMB’s internationalization will go, China’s authorities appear to be balancing the benefits and risks of liberalization,13 carefully timing their decisions accordingly.

They face significant obstacles, not least the continuing downward pressure on the value of China’s currency on forex trading exchanges since it peaked against the U.S. dollar in early 2014. Some market observers believe RMB faces bank sector headwinds that might require a government bailout,14 as well as increased protectionist pressures in the U.S.15 and elsewhere. If these events lead to further reductions in RMB’s value, China could face accelerating capital flight,16 deepening internal opposition to the full elimination of capital controls.

Transacting in RMB

China’s reforms have made it easier for companies that do business in China to settle their transactions in RMB if they so desire. Many of their Chinese trading partners would welcome this, and some may even offer discounts if they can invoice in RMB.17 China’s central bank has estimated that transacting in U.S. dollars may add 2-to-3 percent in administrative expenses alone.18

The risk of currency fluctuation, however, remains a significant issue. Hedging vehicles exist; of course, these have their own costs. In making the decision about whether to transact business in RMB or another currency, companies may wish to make careful and timely assessments about currency risk.

The Takeaway

As China’s financial and market reforms move forward, RMB is emerging as a leading international currency. It has become far easier for international businesses and currency traders to transact in China’s home currency. International businesses may wish to carefully consider currency risk in developing their own plans for RMB forex trading and settlement.

 

 

Key Terms:

  • PB (Prime Brokerages)
  • Inter Dealer
  • Multi Dealer Trading
  • Single Dealer Trading
  • HFT (High Frequency Trading)
  • Market Makers
  • Liquidity Providers
  • Retail Aggregators
  • Retail FX Systems
  • Algorithmic Trading
  • FX ECNs (Electronic Communication Networks)
  • e-Trading
  • Hedge Funds
  • Institutional Clients
  • Non Bank Liquidity Providers
  • FXPB (Foreign Exchange Prime Brokerage)

 

 

Key Sources of Research:

 

Buttonwood The financial markets in an era of deglobalisation

Why the global volume of foreign-exchange trading is shrinking

Dec 15th 2016

http://www.economist.com/news/finance-and-economics/21711887-why-global-volume-foreign-exchange-trading-shrinking-financial?zid=295&ah=0bca374e65f2354d553956ea65f756e0

 

 

Downsized FX markets: causes and implications

BIS

Click to access r_qt1612.pdf

 

 

Triennial Central Bank Survey Foreign exchange turnover in April 2016

 

Click to access rpfx16fx.pdf

 

 

TheForeign Exchange andInterest Rate Derivatives Markets:Turnover in the United States, April 2016

Click to access 2016triennialreport.pdf

 

 

 

The foreign exchange and over-the-counter interest rate derivatives market in the United Kingdom 

Quarterly Bulletin 2016 Q4
16 December 2016

By Alexander Hutton and Edward Kent

http://www.bankofengland.co.uk/publications/Pages/quarterlybulletin/2016/q4/a6.aspx

 

 

The anatomy of the global FX market through the lens of the 2013 Triennial Survey

Click to access r_qt1312e.pdf

 

 

The foreign exchange and over-the-counter interest rate derivatives market in the United Kingdom

2013

 

Click to access qb130410.pdf

 

 

The $4 trillion question: what explains FX growth since the 2007 survey?

Click to access r_qt1012e.pdf

 

 

 

CME Group OTC FX Clearing

 

Click to access otc-fx-clearing.pdf

 

 

 

CME Group Cleared OTC Financial Products

 

Click to access cleared-otc-financial-products.pdf

 

 

Citi tops Euromoney global FX poll again, but big banks lose grip

http://www.reuters.com/article/global-forex-euromoney-idUSL5N18M29O

 

 

Foreign Exchange Market

https://en.wikipedia.org/wiki/Foreign_exchange_market

 

 

All change in the 2016 Euromoney FX rankings

http://www.euromoney.com/Article/3556871/All-change-in-the-2016-Euromoney-FX-rankings.html?single=true

 

 

World’s Best FX Providers 2017

Automation, “algo trading” and a tighter regulatory environment are driving change in the industry

https://www.gfmag.com/topics/blogs/it-pays-have-good-forex-bank

 

 

360T

http://www.360t.com/about-us/press/

 

 

CBOE Will Acquire BATS Global Markets for $3.2 Billion

http://fortune.com/2016/09/26/cboe-acquires-bats/

 

 

e-FOREX

http://www.e-forex.net/institutional-fx-ecommerce.html

 

 

Providing Differentiated Service in an Ever-Evolving Market

2016 Greenwich Leaders: Global Foreign Exchange Services

https://www.greenwich.com/fixed-income-fx-cmds/providing-differentiated-service-ever-evolving-market

 

 

Press Release: Best FX Awards 2017 – Providers and Corporate

https://www.gfmag.com/media/press-releases/best-fx-awards-2017-providers-and-corporate

 

 

 

Global Finance Names The World’s Best Foreign Exchange Providers 2016

https://www.gfmag.com/media/press-releases/global-finance-names-worlds-best-foreign-exchange-providers-2016

 

 

Global Banking & Finance Review Awards – 2015

https://www.globalbankingandfinance.com/global-banking-finance-review-awards-2015/

 

 

New Electronic Trading Systems in Foreign Exchange Markets

2003

D Rime

Click to access Rime-1.pdf

 

Click to access Rime%20New%20Electronic%20FX1.pdf

 

 

Foreign exchange market structure, players and evolution

Michael R. King, Carol Osler and Dagfinn Rime

2011

Click to access Rime-2.pdf

 

 

Settlement Risk in the Global FX Market: How Much Remains?

8 Nov 2016

Dino Kos

Richard M. Levich

https://papers.ssrn.com/sol3/papers2.cfm?abstract_id=2827530

 

 

The Retail Spot Foreign Exchange Market Structure and Participants
John H. Forman III

March 22, 2016

https://papers.ssrn.com/sol3/papers2.cfm?abstract_id=2753823

 

 

Algorithmic trading in the foreign exchange market

Maria Bergsten and Johannes Forss sandahl

2013

 

Click to access rap_pov_artikel_2_130321_eng.pdf

 

 

The Future of the Foreign Exchange Market

Richard K. Lyons

 

Click to access Lyons%20Brookings.pdf

 

 

Multi Bank Platforms

http://www.londonfx.co.uk/ecn.html

 

 

ECNs/Alternative Trading Systems

https://www.sec.gov/divisions/marketreg/mrecn.shtml

 

 

The Transition to Electronic Communications Networks in the Secondary Treasury Market

Bruce Mizrach and Christopher J. Neely

 

http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.205.6479&rep=rep1&type=pdf

 

 

Deal or no deal: anatomy of an FX portal

http://treasurytoday.com/2013/06/deal-or-no-deal-anatomy-of-an-fx-portal

 

 

The 3 Pillars of Forex

http://www.zerohedge.com/news/2016-06-11/3-pillars-forex

 

 

THE VALUE OF APAMA

IN FAST-CHANGING FX MARKETS

 

Click to access sec_SAG_Apama_In-Fast-Changing-FX-Markets_4PG_WP_Feb16_tcm16-116205.pdf

 

 

The Global Foreign Exchange Market: Growth and Transformation

 

William Barker

 

Click to access barker.pdf

 

 

FX ALL

http://www.fxall.com

 

 

Currenex

https://www.currenex.com

 

 

Most Innovative Bank e-FX Trading Platform: Citi

http://www.fxweek.com/fx-week/interview/2464092/most-innovative-bank-e-fx-trading-platform-citi#

 

 

Citi sells its electronic FX platform

https://ftalphaville.ft.com/2010/01/04/118946/citi-sells-its-electronic-fx-platform/

 

 

Nasdaq poised to launch FX trading platform: top executive

http://www.reuters.com/article/us-nasdaq-forex-idUSKCN0QT1VD20150824

 

 

State Street buys electronic foreign exchange trading platform Currenex

http://www.thetradenews.com/Asset-Classes/Foreign-exchange/State-Street-buys-electronic-foreign-exchange-trading-platform-Currenex/

 

 

EBS

http://www.ebs.com

 

 

Electronic Platforms in Foreign Exchange Trading

http://celent.com/reports/electronic-platforms-foreign-exchange-trading

 

 

HOTSPOT FX

https://www.hotspotfx.com

 

 

Icap’s EBS BrokerTec Inks Deal With China’s CFETS

http://www.waterstechnology.com/sell-side-technology/news/2460560/icaps-ebs-brokertec-inks-deal-with-chinas-cfets

 

 

Best Single-Dealer FX Trading Platform

https://www.fnlondon.com/articles/fn-trading-and-technology-awards-shortlist-2015-best-single-dealer-fx-trading-platform-20150810

 

 

Multi-Dealer Platforms to gain ground in 2015

http://www.e-forex.net/articles/apr-2015-multidealer-platforms-to-gain-ground-in-2015.html

 

 

PERSPECTIVE ON NEW ELECTRONIC PLATFORMS, FROM EXECUTION TO DISTRIBUTION

http://fintank.net/position_papers/electronic_platforms/

 

 

FX Trading Platforms: Models Converge and Competition Heats Up

http://celent.com/reports/fx-trading-platforms-models-converge-and-competition-heats

 

 

Trends in Foreign Exchange Markets and the Challenges Ahead

https://www.newyorkfed.org/newsevents/speeches/2015/pot150714

 

 

Restoring trust in global FX markets

Click to access restoring-trust-report.pdf

 

 

2016 – Entering the Age of the “Non-Bank”

http://www.financemagnates.com/thought-leadership/prime-of-prime/2016-entering-the-age-of-the-non-bank/

 

 

The New Wall Street: Even Big Banks Want Help Navigating Markets

Matthew Leising and Annie Massa

Aug 10, 2016

http://www.wealthmanagement.com/markets/new-wall-street-even-big-banks-want-help-navigating-markets

 

 

The Future of Computer Trading in Financial Markets

An International Perspective

 

Click to access tacfuturecomputertrading1012.pdf

 

 

Small Fish Big Prize:  Market Makers out to eat Bank’s lunch

Click to access Small-fish-big-prize-The-Market-makers-out-to-eat-the-banks.pdf

 

 

Automated Trading in Treasury Markets

 

Click to access TMPG%20HFT%20White%20Paper%20FINAL%20-%202015-04-08.pdf

 

 

High Frequency Traders Elbow Their Way Into the Currency Markets

by Lananh Nguyen

September 12, 2016

https://www.bloomberg.com/news/articles/2016-09-12/fastest-guys-in-stocks-are-becoming-a-force-in-currency-markets

 

 

Exclusive: U.S. investigates market-making operations of Citadel, KCG

http://www.reuters.com/article/us-usa-stocks-probe-exclusive-idUSKCN0Y11CJ

 

 

Considering China’s Renminbi for International Settlement and Forex Trading

By Bill Camarda

https://www.americanexpress.com/us/content/foreign-exchange/articles/renminbi-for-forex-trading/

 

 

Pound plummet blamed on ‘liquidity holes’

Sterling’s flash crash was triggered during Asian ‘graveyard shift’ when US/European traders away

https://www.ft.com/content/dc7c0846-8e00-11e6-a72e-b428cb934b78

 

 

Settlement risk in foreign exchange markets and CLS Bank

Click to access r_qt0212f.pdf

 

 

CLS Bank

https://www.cls-group.com/Pages/default.aspx

Evolving Networks of Regional RTGS Payment and Settlement Systems

Evolving Networks of Regional RTGS Payment and Settlement Systems

 

Globalization has created incentives for nations to form regional economic unions to take advantage of scale and resource pooling.

There are a lot of efforts underway to develop and implement regional RTGS between central banks.  There are several models for integration.

  • Many States, Many Currencies – Hong Kong SAR
  • Many States, Single Currency – EU uses EURO and Central America uses USD, SADC uses South African RAND

RTGS systems designed to facilitate such economic integration.

  • RTGS – RTGS – Interlink model – Hong Kong, ASEAN 5
  • RTGS-RTGS – SSP Single Shared Platform model – EU

 

 

 

From  Payment System Interoperability and Oversight: The International Dimension

Several factors may prompt the international interlinking of PSIs. In most cases, linking national PSIs to achieve international interoperability of certain payment services comes from a country’s decisions to exploit the benefits of international economic and financial integration (i.e., greater international trade and investment activities, attraction of foreign investment capital, risk diversification, and deepening and broadening domestic financial and capital markets), since integration requires economic units to have convenient access to cross-border payment service facilities. A powerful driver to regional PSI interlinking is constituted by the political agreements among countries in a region on a broad, long-term economic and financial development cooperative program. Usually, in this case, the efforts to link payment system (as well as other financial market) infrastructures are supported actively by a core group of countries in organized regional development policy and planning forums.5 In some cases, interlinking may result from decisions by national financial authorities to address the demand from market participants (and/or their customers, including asset managers, other securities servicers, and other types of businesses) for cross-border access to international markets at lower end-to-end transaction costs.

Cross-border transactions can be made possible by establishing bilateral links between national PSIs.8 Perhaps the simplest form of PSI interlinking is achieved when two central banks agree on a scheme to support or facilitate cross-border transactions. This likely requires linking the large-value transfer systems of the countries involved by developing technical interfaces between them. Some other solutions are possible which link national payment systems through central bank bilateral accounts, whereby participating central banks hold settlement accounts either with one another or with a common commercial bank.

More advanced solutions for PSI interlinking are characterized by the adoption of a unified scheme and a common technical-operational facility to process the transactions defined under the scheme. The common (regional or global) technical-operational facility follows one of two basic architectures: the decentralized model, or the single or fully centralized model. Arrangements adopting a decentralized model for regional, cross-regional and/or global payments link existing national settlement systems (Figure 1). These normally feature different degrees of sophistication and complexity. Most decentralized regional payment systems are designed in a “hub-spoke” structure, in which there is a central administrative and technical-operational facility referred to as the “hub entity”, which links the participating systems.9 The interlinking mechanism is usually a standardized messaging and connectivity technology, which links account management and the various national operating systems together, while participants access the hub entity through the national settlement infrastructure of their jurisdiction.

In the centralized platform model, the national payment system infrastructures are replaced by a single international system (Figure 2). In this case, it is more appropriate to talk about international payment system integration. Participants access the system directly through the relevant telecommunications network or indirectly through any direct participant in the system. Centralized platforms are mostly identified with international integration projects, most notably regional, which have evolved into monetary unions with the use of a regional currency. They minimize or even eliminate the distinction between cross-border and domestic payments, and allow for processing both types of transactions in the same system seamlessly.

Various examples illustrate the different technical modalities of interlinking discussed above. One example of bilateral links between national payment systems is the linking of the Hong Kong Monetary Authority’s U.S. dollar real-time gross settlement (RTGS) system with the RTGS systems of other central banks in the region, specifically Bank Negara Malaysia’s RENTAS and Bank Indonesia’s BI-RTGS. These systems operate on a common operating platform. Their links, which are independent from each other, allow payment-versus-payment settlement between the national currencies of those countries and the U.S. dollar. Other illustrative examples are the East African Payments System (EAPS), which shows the case of national payment systems linked through the holding of bilateral accounts among central banks, and the Sistema de Pagos en Moneda Local involving the national RTGS systems of Argentina and Brazil, which is an example of the national payment systems linked through their respective central banks which hold settlement accounts with a common commercial bank. Currently, two SML systems are operational: one linking the RTGS systems of Argentina and Brazil, and other linking the RTGS systems of Brazil and Uruguay.

Other cases exemplify the decentralized and centralized models of international payment system integration. Schemes with a decentralized settlement system involving multiple parties have been developed in regions where there is a regional currency, as well as for settling cross-border payments denominated in a single foreign currency. The most well-known example of a unified scheme with a decentralized settlement system for a regional currency was the original TARGET in Europe, which linked the Euro RTGS systems of EU national central banks. Another example is the Sistema de Interconexión de Pagos in Central America and the Dominican Republic, which uses a decentralized architecture for settling cross-border payments in U.S. dollars.11

With regard to the centralized model of PSI interlinking (or integration), relevant examples are TARGET2 and EURO1 supporting euro denominated payments in the European Union,12 the STAR-UEMOA for the West African CFA Franc throughout the West African Economic and Monetary Union, and the RTGS system of the Eastern Caribbean Central Bank (ECCB) for the EC dollar in the Eastern Caribbean Currency Union. Over the past decade, centralized payment system infrastructures have also been developed regionally, where no regional currency existed, to facilitate settlement of domestic, regional, and cross-regional payments in more than one settlement currency (e.g., RAPID in the United Arab Emirates, and CHATS in Hong Kong). Finally, an example of a unified global system for settlements denominated in multiple currencies is CLS Bank International, which links the national RTGS systems of the participating jurisdictions/currencies, with a strong reliance on the legal agreement of the rulebook and the technical standards.

The Southern African Development Community (SADC) regional payment integration project in the Southern African region captures aspects of a centralized model. The project develops on the International Payments Framework (IPF) concept to construct a regional payment infrastructure composed of a regional automated clearing house (ACH) and settlement system.14 The current architecture consists of the SADC Integrated Regional Electronic Settlement System (SIRESS), an electronic central system that facilitates cross border trade in the SADC region. SIRESS, and excludes domestic inter-bank payments and settlements. It allows participating banks to settle regional transactions denominated in South African Rand (ZAR) within SADC countries, on an RTGS basis. The system is operated by the South African Reserve Bank (SARB) on behalf of the SADC Committee of Central Bank Governors, with SARB also acting as the ZAR settlement bank. It is a safe and efficient payment/settlement system which reduces the cost to banks since there is no correspondent bank (intermediary) involved.15 The project should eventually evolve into a single regional payment settlement infrastructure, in tandem with the planned monetary union.

The prototypal regional systems for retail payments were multilateral arrangements governed by service agreements and operational protocols of limited standardization between participating banks in different countries. For example, TIPANET, which was designed as a cross-border retail payment service for credit transfers between cooperative banks in Europe and Canada, provided participating members with somewhat lower cost and faster payment delivery than the usual correspondent banking arrangements of that time.16 The widespread growth of credit and debit card payment schemes since the late 1980s provided a second wave of regional and crossregional PSI linkages and integration.

Some regional cross-border arrangements have developed across direct (horizontal) linkages between national schemes. This is the case of the arrangement linking the Interac debit card system in Canada, the NYCE Payments Network and PULSE systems in the United States, and Union Pay in China for access by the schemes’ cardholders to the cross-border debit and ATM networks. Global card payment schemes such as VISA and MasterCard provide cross-border interoperability in transaction systems for credit and debit payments and ATM cash withdrawals for cardholders and (vertical) integration of these systems with proprietary clearing and settlement systems. As global card payment schemes, they deal with domestic, regional, and cross-regional payments.17

Regional and cross-regional interlinking of national and funds transfer systems in general is a fairly recent development. Some, such as EBA Clearings’ STEP2 in Europe and SICA-UMEOA in the West African Monetary and Economic Union, are single regional schemes and systems for both domestic and cross-border payments among member countries using the euro and the CFA franc, respectively. Others are generally constructed through (horizontal) bilateral linkages between national ACHs. These linkages allow the ACH members in one country to transmit customer payments, typically via credit transfers, to end-receivers holding accounts with ACH members in other countries. The network architecture for regionally or cross-regionally linked payment clearing infrastructure and for single regional ACHs can be either a hub-spoke arrangement with a central hub connection, a centralized network structure, or a distributed bilateral network structure, which contemplates the operation of large providers of payment clearing and processing services (Box 1). Another example, in Europe, is the Single Euro Payments Area (SEPA) scheme compliant clearing and settlement mechanisms (CSMs). Services offered by competing CSMs, based on the SEPA payment schemes, are governed by market forces and are outside the remit of the European Payments Council (EPC). The EU regulation provides that, within the EU, a PSP reachable for a national euro credit transfer or direct debit shall be reachable for euro credit transfers or direct debits initiated through a PSP located in any member state. Any PSP participating in any of the EPC SEPA Schemes (SEPA Credit Transfer, SEPA Direct Debit), under the relevant scheme adherence agreement with the EPC and the relevant EPC SEPA Scheme Rulebook, is permanently obligated to comply with reachability from its readiness date. Each PSP needs to determine how to achieve full reachability for the EPC SEPA Scheme(s) it has adhered to. There are several ways for PSPs to send and receive euro payment transactions to and from other PSPs across SEPA. PSPs can choose and use any solution or combination of solutions, directly or indirectly, as long as reachability and compliance with the EPC SEPA Schemes are effectively ensured.

 

Main Regions with Regional RTGS Systems

  • EU TARGET2
  • Hong Kong SAR
  • West Africa – WAMZ
  • East Africa – EAPS
  • South Africa (SADC) – SIRESS
  • ASEAN AEC – ASEAN 5 RTGS
  • Central America – USD based RTGS – SIP

 

crossbor3crossbor4

 

Europe TARGET2 

Since the establishment of the European Economic Community in 1958 there has been a progressive movement towards a more integrated European financial market. This movement has been marked by several events. In the field of payments, the most visible were the launch of the euro in 1999 and the cash changeover in the euro area countries in 2002.
The establishment of the large-value central bank payment system TARGET was less visible, but also of great importance. It formed an integral part of the introduction of the euro and facilitated the rapid integration of the euro area money market.
A unique feature of TARGET2 is the fact that its payment services in euro are available across a geographical area which is larger than the euro area. National central banks which have not yet adopted the euro also have the option to participate in TARGET2 to facilitate the settlement of transactions in euro. When new Member States join the euro area the participation in TARGET2 becomes mandatory. The use of TARGET2 is mandatory for the settlement of any euro operations involving the Eurosystem.
As of February 2016, 25 central banks of the EU and their respective user communities are participating in, or connected to, TARGET2:
The 20 euro area central banks (including the ECB) and
five central banks from non-euro area countries: Bulgaria, Croatia, Denmark, Poland and Romania.

 

 

 

Hong Kong RTGS System

System Links

Hong Kong’s financial infrastructure is designed to cater for cross-border as well as domestic economic activities. Links with payment systems and debt securities systems in other economies provide an easily accessible payment and settlement platform for cross-border economic transactions and financial intermediation.

Payment Links

Links with Guangdong (including Shenzhen) – Launched in phases since January 1998, these links cover cross-border RTGS payments in Hong Kong dollars and US dollars, and cheque clearing in Hong Kong dollars, US dollars and renminbi, with Guangdong Province including Shenzhen.1 The use of these links, which helps expedite payments and remittances between Hong Kong and Guangdong, has been rising gradually with the increasing economic integration between Hong Kong and the Mainland.

Cross-border payment arrangements with Mainland – Cross-border payment arrangements involving the Mainland’s Domestic Foreign Currency Payment System were established in March 2009 to facilitate foreign currency funding and liquidity management of Mainland banks and commercial payments. The cross-border payment arrangements currently cover four currencies – the Hong Kong dollar, US dollar, euro and British pound.

Link with Macau – The one-way joint clearing facility for Hong Kong dollar and US dollar cheques between Hong Kong and Macau was launched in August 2007 and June 2008 respectively, reducing the time required for clearing Hong Kong dollar and US dollar cheques drawn on banks in Hong Kong and presented in Macau from four or five days to two.

Link with Malaysia – A link between the Ringgit RTGS system in Malaysia (the RENTAS system) and the US dollar RTGS system in Hong Kong came into operation in November 2006. The link helps eliminate settlement risk by enabling PvP settlements of foreign exchange transactions in ringgit and US dollars during Malaysian and Hong Kong business hours. This is the first cross-border PvP link between two RTGS systems in the region.

Link with Indonesia – The PvP link between Hong Kong’s US dollar RTGS system and Indonesia’s Rupiah RTGS system was launched in January 2010. The link helps eliminate settlement risk by enabling PvP settlements of foreign exchange transactions in Rupiah and US dollars during Indonesian and Hong Kong business hours.

Link with the Continuous Linked Settlement (CLS) system – The CLS system, operated by CLS Bank International, is a global clearing and settlement system for cross-border foreign exchange transactions. It removes settlement risk in these transactions by settling them on a PvP basis. The Hong Kong dollar joined the CLS system in 2004.

Regional CHATS – This is an extension of the RTGS systems in Hong Kong in the regional context. Regional payments in Hong Kong dollars, US dollars, euros and renminbi can use the RTGS platform in Hong Kong to facilitate cross border/cross bank transfers in those currencies.

Link with Thailand

In 2014, Hong Kong started operating PvP link between HK’s US dollar RTGS system and Thailand’s BAHT RTGS system.

 

regionalrtgs

 

 

US FEDWIRE RTGS System

This is surprisingly subtle.

When, for instance, when bank A in the Richmond Federal Reserve district sends $1000 in reserves to bank B in the Minneapolis Federal Reserve district, reserves are taken out of bank A’s account at the Richmond Fed and placed into bank B’s account at the Minneapolis Fed.

Now, bank A’s reserves are a liability on the books of the Richmond Fed, while bank B’s reserves are a liability on the books of the Minneapolis Fed. Without any offsetting change, therefore, the process would result in the Richmond Fed discharging a liability and the Minneapolis Fed gaining a liability – and if this continued, regional Fed assets and liabilities could become highly mismatched.

The principle, then, is that there should be an offsetting swap of assets. It would be too complicated to swap actual assets every time there is a flow of reserves between banks in different districts. (There’s over $3 trillion in transactions every day on Fedwire, the Fed’s RTGS system – and if even a fraction of those are between different districts, the amounts are really enormous.) Instead, in the short run the regional Feds swap accounting entries in an “Interdistrict Settlement Account” (ISA). In the example above, the Minneapolis Fed’s ISA position would increase by $1000, while the Richmond Fed’s ISA position would decrease by $1000, to offset the transfer of liabilities.

So far, this is all very similar to the controversial TARGET2 system in the Euro area, in which large balances between national banks have recently been accumulating. The American system is different, however, because ISA entries are eventually settled via transfers of assets. Every April, the average ISA balance for each regional Fed over the past year is calculated, and this portion of the balance is settled via a transfer of assets in the System Open Market Account (the main pile of Fed assets, run by the New York Fed). Hence, if in April the Minneapolis Fed has an ISA balance of +$500, but over the past year it had an average balance of +$2000, its balance is decreased (by $2000) to -$1500, and it has an offsetting gain of $2000 in SOMA assets.

As this example shows, since it is average balances over the past year that are settled, not the current balances, ISA balances do not necessarily go to zero every April. Historically, they were fairly tiny anyway, but since QE brought dramatic increases in reserves, these balances have sometimes been large and irregular. In the long run, though, the system prevents any persistent imbalances from accumulating.

(Note: the process in April is a little bit more complicated than I describe, since some minor transfers of gold certificate holdings are also involved. Basically, gold certificates are transferred between regional Feds to maintain a constant ratio of gold certificates to federal reserve notes; the transfers of SOMA assets are adjusted to account for this. Wolman’s recent piece for the Richmond Fed is one of the few sources that describes the system in detail.)

 

Twelve Districts of Federal Reserves

Federal Reserve Banks

  • Boston
  • New York
  • Philadelphia
  • Cleaveland
  • Richmond
  • Atlanta
  • Chicago
  • St. Louis
  • Minneapolis
  • Kansas City
  • Dallas
  • St. Francisco

Structure of Federal Reserve

Inter district Settlement Account Balances

 

 

East African Community

EAC Payment and Settlement Systems Integration Project (EAC-PSSIP)

 

The East African Community Secretariat has received financing from the African Development Fund (ADF) toward the cost of the establishment of EAC Payment and Settlement Systems Integration Project (EAC- PSSIP) and intends to apply part of the agreed amount for this grant to payments under the contract for Audit Services for the EAC Payment and Settlement Systems Integration Project (EAC-PSSIP).

The EAC-PSSIP is an integral part of the EAC Financial Sector Development and Regionalisation Project’s (FSDRP) higher objective of broadening and deepening the financial sector and is aimed at complementing the integration of the regional financial market infrastructure to facilitate the undertaking of cross border funds transfer in support of the economies of the region as a whole. The project objective is to contribute to the modernization, harmonization and regional integration of payment and settlement systems.

The project specifically aims at: enhancing convergence and regional integration of payment and settlement systems; and strengthening a harmonized legislative and regulatory financial sector capacity in the Partner States. The Project is structured under the following components: Component 1: Integration of Financial Market Infrastructure; Component 2: Harmonization of Financial Laws and Regulations; and Component 3: Capacity Building.

The project commenced its operation in January, 2014 and it was officially launched in March, 2014.

Towards A Single Currency

The latest development is the 2013 Monetary Union protocol, which sets out the terms for the introduction of a single currency by 2024. The IMF has stated that greater integration is “expected to help sustain strong economic growth and improve economic efficiency. A larger regional market will lead to economies of scale, lower transaction costs, increased competition, and greater attractiveness as a destination for FDI.” The first step towards this goal has already been taken. In May 2014 the East African Payment System (EAPS) was launched. The new system will facilitate real-time cross-border payments between member states. Initially, the EAPS was operational between Kenya, Tanzania and Uganda, linking the Tanzania Interbank Settlement System, the Kenya Electronic Payment and Settlement System, and the Uganda National Interbank Settlement. Lucy Kinunda, director of national payment systems at the Tanzanian central bank, told the local press, “We see the enthusiasm among commercial banks and traders building up as it facilitates intra-regional trade by reducing costs and risks in money transfers across border.”

While there is much expectation for the single currency and the political and economic integration it will bring, the main challenge will be the process of macroeconomic convergence. There has been substantial variation in inflation and economic growth rates within the EAC. For Kenya, there will also be a challenge in meeting the macroeconomic criteria laid out in the Monetary Union Protocol. In the decade to the end of 2013, Kenya only achieved the inflation target of below 8% in 2010 and 2013. The country fares better on the ratio of public debt to GDP, maintaining a ratio below the target level of 50% every year between 2008 and 2013. The member states have almost a decade to meet the convergence criteria.

 

Member States

  • Burundi
  • Kenya
  • Rawanda
  • Tanzania
  • Uganda

 

 

 

SADC – Southern African Development Community – uses RAND as settlement Currency

The Southern African Development Community (SADC) aims to achieve economic development, peace and security, alleviate poverty, and enhance the standard and quality of life of the peoples of Southern Africa through regional integration. Current status In order to achieve the above objective, a comprehensive development and implementation framework – the Regional Indicative Strategic Development Plan (RISDP) – was formulated in 2001 guiding the regional integration over a period of fi fteen years (2005-2020). The RISDFP outlines key integration milestones in fi ve areas: free trade area, customs union, common market, monetary union and single currency. The free trade area was achieved in August 2008, meaning that for 85% of intra-regional trade there is zero duty. The second milestone, to establish a customs union, has been postponed, with a new target date of sometime in 2013. Although the ultimate goal of monetary union with a single currency is several years away, the SADC Payment System integration project is already in motion. This has strategic objectives to: harmonise legal and regulatory frameworks to facilitate regional clearing and settlement arrangements; implement an integrated regional cross-border payment settlement infrastructure; and establish a co-operative oversight arrangement based on the harmonised regulatory framework. The first phase of the cross-border payment settlement infrastructure (SIRESS) went live for the Common Monetary Area countries that use the South African rand (South Africa, Lesotho, Namibia and Swaziland) in July 2013. The new system allows the settlement of payment transactions in a central location using rand as the common settlement currency. Next steps – towards an Economic Union If successful, the new system will be rolled out to the rest of the SADC Member States as the region advances towards its eventual establishment as an economic union. In parallel, the immediate next step is the establishment of the SADC customs union, which presents a number of challenges; the major one is the establishment of a single Common External Tariff, which requires convergence of all individual tariff policies into a single and uniform tariff regime.

The first stage of the Sadc Integrated Regional Electronic Settlement System (SIRESS), being the first go-live involving countries in the Common Monetary Area (CMA) namely Lesotho, Namibia, South Africa and Swaziland, was initiated in July 2013. Phase Two involved Malawi, Tanzania and Zimbabwe going live in April 2014 followed by Mauritius and Zambia which went live in September 2014 under Phase Three. Since the launch of Siress, 43% of payments in the Sadc region are now executed through the system, which settles payments in South African rand. By April 2015 Siress had reached the ZAR1 trillion (US$85,1 billion) settlement mark. This phenomenal growth of Siress is emblematic of the growing importance and influence of regional payment systems in general, the rationale of which is the subject of this article.

 

Member States

  • Angola
  • Botswana
  • Congo
  • Lesotho
  • Madagascar
  • Malawi
  • Mauritius
  • Mozambique
  • Namibia
  • Seychelles
  • South Africa
  • Swaziland
  • Tanzania
  • Zambia
  • Zimbabwe

As of 2015, 9 out of the 15 countries have joined the RTGS system.

  • Lesotho
  • Malawi
  • Namibia
  • Mauritius
  • Soth Africa
  • Swaziland
  • Tanzania
  • Zambia
  • Zimbabwe

 

sadc_member_states_lowres

 

 

 

ECOWAS – West Africa Monetary Zone (WAMZ)

The Economic Community of West African States (ECOWAS)’ Monetary Cooperation Programme (EMCP) provided the blueprint for the economic integration of the countries of West Africa. Amongst other measures, the EMCP called for the creation of a single monetary zone in the sub-regions known as the West African Monetary Zone (WAMZ). The WAMZ was created in April 2000 with the goal to establish an economic and monetary union of the member countries. In 2001, WAMZ created the West African Monetary Institute (WAMI) to undertake preparatory activities for the establishment of the West African Central Bank (WACB), and the launching of a monetary union for the Zone. The WAMZ programme aims to increase trade among the ECOWAS/WAMZ member countries, reduce transaction costs for the users of payment systems, domesticate cross-border transactions within the WAMZ through the use of a single currency, develop safe, secure and effi cient payment systems that conform to global standards and build a payment system that will facilitate monetary policy management for the WACB.

Ahead of the establishment of the WACB, having a modernised, safe and stable financial infrastructure in place is a prerequisite to introduce a monetary union successfully. To this effect, a grant of about USD 30 million from African Development Bank Fund was approved for the WAMZ Payments System Development Project, which aims to improve the basic infrastructure of the fi nancial sector through upgrade of the payment systems of our countries – The Gambia, Guinea, Sierra Lone and Liberia. The system components of the project include Real-Time Gross Settlement (RTGS) system, Automated Clearing House (ACH) / Automated Cheque Processing (ACP) systems, Central Securities Depository (CSD) / Scripless Securities Settlement (SSS) systems, Core Banking Application (CBA) system and infrastructure upgrade (telecommunication and energy). The Gambia’s high-value payment system went live in July 2012 and Sierra Leone is currently going through the implementation. The target date of the project completion in all four countries is June 2014.

Member States

  • Ghana
  • Nigeria
  • Gambia
  • Guinea
  • Sierra Leone
  • Liberia

 

 

 

COMESA – Common Market for East and Southern Africa

The COMESA launched the COMESA Customs Union in 2009 and the COMESA Regional Payment and Settlement System (REPSS) to facilitate crossborder payment and settlement between Central Banks in the COMESA region. The new system provides a single gateway for Central Banks within the region to effect payment and settlement of trades.

Member States

Burundi, Comoros, DRC, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia, Zimbabwe

 

 

 

ECOWAS – WAEMU/UEMOA – West African Economic and Monetary Union

created as a single monetary zone is the West African Economic and Monetary Union (WAEMU) / Union Economique et Monétaire Ouest Africaine (UEMOA). The WAEMU was established to promote economic integration among member countries and a common market that share West African francs (CFA francs) as a common currency, monetary policies, and French as an official language. It is a trade zone agreement to encourage internal development, improve trade, establish uniform tariffs for goods, establish a regional stock exchange and a regional banking system.

The UEMOA/WAEMU has successfully implemented macro-economic convergence criteria and an effective surveillance mechanism; adopted a customs union and common external tariff; and combined indirect taxation regulations, in addition to initiating regional structural and sectoral policies. Uniquely amongst Africa’s regionalisation projects, UEMOA/WAEMU has a single central bank, Banque Centrale des Etats de l’Afrique de l’Ouest (BCEAO), which governs all of the fi nancial institutions across the Union. As part of the project for modernisation of the payment and financial infrastructure, the BCEAO launched a regional Real Time Gross Settlement (RTGS) system in 2004 and the regional Automated Clearing House (ACH) system in 2008.

Member States

Benin, Burkina Faso, Ivory Coast, Guinea-Bissau, Mali, Niger, Senegal, Togo

 

 

 

Central America

SIP — A NEW INTEGRATED REGIONAL PAYMENT SYSTEM

  • Guatemala
  • Costa Rica
  • Honduras
  • El Salvador
  • Nicaragua
  • Dominican Republic

Uses US Dollar as settlement Currency.

mapasip

 

The SIP is a novel framework in the Americas, with several elements that dis- tinguish it from other cross-border arrangements: it involves participants in various countries, allows for payment flows in all directions among participants, uses an RTGS concept for its ‘hub’ and interlinks exclusively central bank RTGS systems, not ACHs, and uses a foreign currency for its settlement accounts.

There may certainly be some doubts as to whether the degree of existing commercial integration among the countries of Central America and the Dominican Republic will suffice to make SIP a commercially viable proposition.

But one can see the SIP as part of a wider initiative which seeks to develop the financial infrastructure with a view to furthering a regional financial market. The SIP will be an integral part of the local payment systems of CMCA member countries and, as such, will widen the coverage of available services to the benefit of participants of the national payment systems. Furthermore, the SIP could act as a direct stimulus for those banks that operate in only one of the member countries to offer affordable cross-border payment services to its clients and thus assist in the strengthening of regional financial integration.

 

 

Asia – South East Asia – ASEAN 5

Payment issues: Deputy Trade Minister Bayu Krisnamurthi (second right), accompanied by Artajasa president director Arya Damar (right), inspects a booth during the Integrated Payment System seminar in Jakarta on Wednesday. The seminar aimed at informing business players about the integrated payment system ahead of the ASEAN Economic Community in 2015. (Antara/Prasetyo Utomo)

Bank Indonesia (BI) is currently developing tools to create a more time-efficient and low-cost payment system ahead of the launch of the ASEAN Economic Community (AEC) in 2015, when there will be a free flow of goods, services and people among ASEAN member countries.

‘€œWe are working to develop a more integrated national payment system before having an integrated payment system within the ASEAN region,’€ BI payment system executive director Rosmaya Hadi said at a seminar held by electronic payment service provider PT Artajasa Pembayaran Elektronik on Wednesday.

With the new system, the Indonesian banking industry will have a new real-time gross settlement system (RTGS) in which bank customers can carry out multi currency transactions on a real-time basis, she said.

‘€œWith this system, a bank customer can carry out multicurrency transactions in only minutes through non-cash payments,’€ she said, adding that BI would launch the new system this year.

Rosmaya also said the Indonesian central bank and its counterparts in five ASEAN members, including Malaysia, the Philippines, Singapore and Thailand, had agreed to prepare for an integrated payment system.

‘€œCentral banks of the ASEAN 5 have formed task forces on trade settlements, retail payments, monthly remittances, capital market settlements and standardization to formulate a set of regulations and schemes with which we will have an ASEAN integrated payment system,’€ she said.

Under the regional integrated payment system, people in ASEAN will be able to make financial transactions through ATMs, credit cards or electronic money without sacrificing much time and money.

According to a report by the ASEAN Working Committee on Payment and Settlement Systems (WC-PSS), the integrated payment system will reduce bank charges (such as foreign exchange spread among ASEAN currencies and handling fees), and encourage regulated non-bank remittance service providers to adopt international/common standards in retail payment systems.

Of all the ASEAN member countries, only Indonesia, the Philippines and Thailand currently have full ATM interoperability, according to an Asian Development Bank Institute report published in 2013.

‘€œWhen the AEC commences, ASEAN member countries will have greater need for an integrated payment system as people from across the region will have to carry out transactions from and to their home countries,’€ said Deputy Trade Minister Bayu Krisnamurthi at a similar event.

The AEC, also known as the ASEAN single market, will commence at the end of 2015. Under the AEC, the ASEAN 5 and Brunei Darussalam will have free trade agreements, while Cambodia, Laos, Myanmar and Vietnam will fully participate in the community in 2018.

Artajasa president director Arya Damar said that Indonesia should also develop its banking sector to tap its large market by utilizing more cashless transactions, otherwise other ASEAN countries’€™ banks would do so.

Citing BI data, Artajasa said that with a total of 800,000 local branches, commercial banks in Indonesia could reach only 20 percent of the total working-age population of around 150 million people.

‘€œMeanwhile, with only 15,000 ATMs, Malaysian commercial banks can reach 66 percent of its total working-age population,’€ he said.

Thai commercial banks, with around 66,000 ATMs, can reach about 30 percent of Of Thailand’€™s total working-age population, he added. (koi)

 

SINGAPORE – The five largest members of ASEAN – Indonesia, Malaysia, Singapore, the Philippines and Thailand – have agreed to implement an integrated payment system to enable real time gross settlement (RTGS) systems to be in effect by next year.

“With this system, a bank customer can carry out multi-currency transactions in minutes through non-cash payments,” said Rosmaya Hadi with Bank Indonesia.

The ASEAN 5 Central Banks are currently working on establishing protocols for intra-trade settlement, retail payments, monthly remittances, capital market settlements and standardization to enable the system to be up and running by the time the ASEAN Economic Community (AEC) unification occurs next January.

“When the AEC commences, ASEAN member countries will have greater need for an integrated payment system as people from across the region will have to carry out transactions from and to their home countries,” according to Deputy Trade Minister Bayu Krisnamurthi.

Under the system, individual users across ASEAN will be able to make financial payments through ATMs, credit cards, or electronic money without spending a significant amount of time or money doing so. As ASEAN currently has no plan to establish a unified currency, this program is expected to increase multi-currency transactions.

ASEAN members are also developing their ATM networks; Indonesia, for example, has an ATM reach of 20 percent of its total working population of 150 million, compared with 66 per cent for Malaysia.

Indonesia, Malaysia and Thailand are currently the only ASEAN members to have full ATM integration according to the Asian Development Bank. This will soon change as the other ASEAN member nations work towards greater integration.

Member States

Indonesia, Thailand, Phillipines, Singapore, Malaysia and Brunei Darussalam in 2015

Cambodia, Laos, Myanmar and Vietnam to join in 2018

 

 

 

ASEAN +3 Cross Border Infrastructure

In Delhi in May 2013, the Finance Ministers and Central Bank Governors of the Association of Southeast Asian Nations (ASEAN), the People’s Republic of China (PRC), Japan, and the Republic of Korea—collectively known as ASEAN+3—agreed to set up a Cross-Border Settlement Infrastructure Forum (CSIF) to discuss detailed work plans and related processes for the improvement of cross-border settlement in the region, which included the possibility of establishing a regional settlement intermediary (RSI). Members, observers, and the CSIF Secretariat are listed in Appendix 1.

Based on the intensive discussions among CSIF members, the first report, Basic Principles on Establishing a Regional Settlement Intermediary and Next Steps Forward, was published by the Asian Development Bank in May 2014 after being endorsed by the ASEAN+3 finance ministers and Central Bank governors at their 17th meeting held in May 2014 in Astana. The members agreed that the central securities depository (CSD)–real-time gross settlement (RTGS) linkages, which connect national CSD systems and RTGS systems in a flexible

way, would be an achievable model for cross-border settlement infrastructure in the short term and medium term. This model linking existing infrastructure enables local bonds to be settled in delivery versus payment (DVP) via central bank money, which ensures the safety of settlement and is compliant with international standards, as well as being cost- efficient. As such, the CSD–RTGS linkages are to be studied as the most feasible model for implementing the RSI in ASEAN+3.

The Joint Statement of the 17th ASEAN+3 Finance Ministers and Central Bank Governors Meeting reads as follows:

We welcomed the recommendations submitted by the Cross-Border Settlement Infrastructure Forum (CSIF) and the direction of developing the implementation roadmap of CSD-RTGS linkages as short-term and medium-term goals and integrated solution as a long-term goal for making it possible to deliver securities smoothly and safely versus payment across borders. We are of the view that this is a practical and efficient approach to advance regional settlement infrastructure that promotes cross-border securities transactions in the region.

The 4th and 5th CSIF meetings were held in Hong Kong, China (September 2014) and Manila (January 2015), respectively. Specific topics to develop an implementation plan for the CSD–RTGS linkages—such as a desktop study, possible road map—were discussed at these meetings. As an initial step, the Bank of Japan (BOJ) and the Hong Kong Monetary Authority (HKMA) agreed to conduct a desktop study.

 

 

Regional Integration in South Asia:  BIMSTEC, SAARC, SAPTA, SAFTA

 

January 1, 2016, marked the tenth anniversary of the South Asian Free Trade Area (Safta). The agreement, which was reached in January 2004 at the 12th Saarc Summit in Islamabad, Pakistan, came into force on January 1, 2006, and became operational after the agreement was ratified by seven nations (Afghanistan, the eighth member, ratified it in May 2011).

It created a free trade area for the people of eight South Asian nations and aimed at reducing custom duties of all traded goods to zero by 2016.  That year is here but the South Asian nations see trade among them making up a meagre five per cent of their total transactions.

The purpose of Safta was to promote common contract among the member-nations and provide them with equitable benefits. It also aimed at increasing the level of cooperation in economy and trade among the Saarc nations by lowering the tariff and barriers and give special preference to the least developed countries in the Saarc region.

Safta had a potential

At a time when regional trade blocs and free trade area have emerged as models of cooperative economic growth, the Safta had offered a great opportunity to take forward the process of South Asian integration.

But South Asia has too much problems

But South Asia is a unique regional entity in the entire world. It is a region which has remained a prisoner of the past and pressing geopolitical realities involving India, Pakistan and China.

Thanks to the relentless rivalry between India and Pakistan and the latter’s proximity to the Chinese who have included the strategy of containing India in its scheme of things in South Asia, the idea of integration of South Asia in other forms have remained elusive.
Other smaller countries like Nepal, Bengladesh, Maldives and Sri Lanka, too, have played the China card against India time and again, hurting the prospects of mutual confidence.

In such an atmosphere of suspicion, achieving what the Safta had envisioned a decade back has been next to impossible. Despite a free trade pact since 2006, trade among South Asian nations makes up five percent of their total trade. They share few transport and power connections between them.

We saw how Saarc fell apart at its 2014 summit

We saw how the Saarc was split during the 18th summit held in Kathmandu in 2014 end when India and Nepal accused Pakistan of creating an obstacle on the way of regional integration by refusing to sign three multilateral agreements, including road trade and sharing of electricity.

Indian Prime Minister Narendra Modi even went to the extent of warning at that time, saying the integration would happen through the Saarc or without it.

He found backing in the Nepali ranks. India then went ahead with ties (visa, energy, road) with other neighbours like Nepal and Bangladesh and also promised to cut its trade surplus with the South Asian nations. But in all, Modi expressed displeasure that the progress was too slow.

Despite the presence of instruments like Safta and Bimstec (Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation), South Asia has only languished. The state of affairs in connectivity, financial infrastructure including banking and mobility of people and goods have remained stuck in the complex cobweb of customs, visa and transit norms.

India, too, is responsible for the poor state of affairs

India, being the largest nation in South Asia, has been equally guilty by not attaching much significance to the forum in the past, as it did in nurturing relation with the West and Russia. There has been a sheer lack of continuity in the country’s successive governments’ priorities towards South Asia.

For most, a combative policy towards Pakistan and dominating approach towards the smaller neighbours have been the most-after stand. No wonder, opportunities like Safta were lost without a trace.

Can Narendra Modi govt turn the tables around?

However, the Narendra Modi regime has attached much importance to the issue of South Asian integration which is a silver lining. The way India’s PM invited all South Asian heads of states or representatives to his swearing-in ceremony or kicked off his foreign tours with visits to small states like Bhutan and Nepal or suddenly landed in Lahore to reach out to his Pakistani counterpart-all these suggest that his government aspires to see a better surroundings.

Yes, there have been a serious goof-up by India’s foreign-policy makers in Nepal in the wake of its ratifying a new constitution, which has left the Himalayan neighbour distraught, but yet going by PM Modi’s general intent of improving the state of South Asian cooperation, the decade-old Safta could still have a future.

As of now, the wait will be for the 19th Saarc summit in Islamabad later this year.

 

Towards South Asia Economic Integration

Payment systems to facilitate South Asian integration

SAARC Payment Initiative

Asian Clearing Union

A review of the Asian Clearing Union

 

 

 

 

Key Sources of Research:

 

TARGET2

https://www.ecb.europa.eu/paym/t2/shared/pdf/professionals/SIBOS_13_Target2_HQ.pdf?ddee08326301ecfe43123f036ade4322

 

 

 

Regional Monetary Co-operation in the Developing World Taking Stock

Barbara Fritz / Laurissa Mühlich

2014

Click to access Paper-Stocktaking-Regional-Monetary-Cooperation-Fritz-Muehlich-22-07-14-end.pdf

 

 

 

 

Redefining the Landscape of Payment Systems

Summary of Proceedings of the World Bank Conference

2009

 

Click to access 705740ESW0P1100Cape0Town0April02009.pdf

 

 

 

PAYMENT SYSTEMS TO FACILITATE SOUTH ASIAN INTRA- REGIONAL TRADE

Ashima Goyal

September 2014

 

Click to access Development%20Paper_1403.pdf

 

 

 

 

Regional Integration and Economic Development in South Asia

 

Click to access regional-integration-economic-development-south-asia.pdf

 

 

 

Creating an Association of Southeast Asian Nations Payment System: Policy and Regulatory Issues

Tanai Khiaonarong

No. 422 May 2013

 

Click to access adbi-wp422.pdf

 

 

 

 

BASIC PRINCIPLES ON ESTABLISHING A REGIONAL SETTLEMENT INTERMEDIARY AND NEXT STEPS FORWARD

CROSS-BORDER SETTLEMENT INFRASTRUCTURE FORUM

ADB

 

Click to access establishing-regional-settlement.pdf

 

 

 

PAYMENT AND SECURITIES SETTLEMENT SYSTEMS IN THE MIDDLE EAST AND NORTH AFRICA

MASSIMO CIRASINO AND MARCO NICOLÌ

JUNE 2010

 

Click to access MENAFlagshipPaymentsandSettlementsSystems12_20_10.pdf

 

 

 

HKMA RTGS System Links

 

http://www.hkma.gov.hk/eng/key-functions/international-financial-centre/infrastructure/system-links.shtml

 

 

 

Payments Systems and Intra African Trade

 

Click to access chap8.pdf

 

 

 

Africa Payments: Insights into African transaction flows

SWIFT

 

 

 

PAYMENT SYSTEMS DEVELOPMENT IN THE WEST AFRICAN MONETARY ZONE (WAMZ)

BY TEMITOPE W. OSHIKOYA

 

Click to access Temitope_WOshikoya.pdf

 

 

 

SADC Regional payments integration Project – Annexure 6

Brian Gei-Khoibeb

 

http://209.88.21.122/documents/899832/1426693/SADC+Regional+Payments+Integration+18+06+2014.pdf/d5228610-a512-4a06-8ef2-03bba1c2be58

 

 

 

CROSS-BORDER LOW VALUE PAYMENTS AND REGIONAL INTEGRATION: ENABLERS AND DISABLERS

DR. LEO LIPIS COLIN ADAMS

 

Click to access SWIFT-Institute-Working-Paper-No-2014-005-Cross-border-LVP-Regional-Integration-Lipis_v4-FINAL.pdf

 

 

 

 

 

SADC Payments Project

 

http://www.sadcbanking.org/paymentsproject.aspx

Click to access SADC_Payments_Project.pdf

 

 

 

The development of a regional payment system in Central America: A step towards further integration and economic development.

Gregor Heinrich and Enrique Garcıa Dubon

2011

 

Click to access MPRA_paper_47398.pdf

 

 

 

Implementing Cross-border Payment, Clearing and Settlement

Systems: Lessons from the Southern African Development Community

 

Albert Mutonga Matongela

 

http://www.iiste.org/Journals/index.php/RJFA/article/viewFile/7798/7942

 

 

 

Payment System Interoperability and Oversight: The International Dimension

 

Click to access ITUFGDFS_REPORT%20ON%20Payment%20System%20InteroperabilityandOversightThe%20InternationalDimension-11-2016.pdf

 

 

 

Payment systems to facilitate South Asian integration

2014

 

Click to access WP-2015-021.pdf

 

 

 

Towards South Asia Economic Union

2015

 

Click to access Towards%20South%20Asia%20Economic%20Union.pdf

 

 

 

RBI suspends euro transactions via Asian Clearing Union

 

http://economictimes.indiatimes.com/markets/forex/rbi-suspends-euro-transactions-via-asian-clearing-union/articleshow/53001118.cms

 

 

 

Financial Infrastructure in Hong Kong

2013

Click to access facb1-657-4-e.pdf

 

 

 

PEOPLE’S REPUBLIC OF CHINA––HONG KONG SPECIAL ADMINISTRATIVE REGION

OVERSIGHT AND SUPERVISION OF FINANCIAL MARKET INFRASTRUCTURES–TECHNICAL NOTE

 

IMF Country Report No. 14/208

July 2014

FINANCIAL SECTOR ASSESSMENT PROGRAM

 

Click to access cr14208.pdf

 

 

 

PAYMENT AND SETTLEMENT SYSTEMS

Bonk of Malaysia

 

Click to access cp04.pdf

 

 

 

Financial Sector Reforms and Prospects for Financial Integration in Maghreb Countries

Amor Tahari, Patricia Brenner, Erik De Vrijer, Marina Moretti, Abdelhak Senhadji, Gabriel Sensenbrenner, and Juan Solé

 

Click to access Financial%20sector%20reforms%20IMF.pdf

 

 

 

The Southern African Development Community Integrated Regional Settlement System (SIRESS): What? How? and Why?

 

Click to access July%202013%20Economic%20Revivew.pdf

 

 

 

The Payment and Settlement Systems in the Republic of China (Taiwan)

October 2010

 

Click to access 010269422971.pdf

 

 

 

PAYMENT SYSTEMS IN JAPAN

 

2010

Click to access paymentsystems.pdf

 

 

 

The Inefficiencies of Cross-Border Payments: How Current Forces Are Shaping the Future

Written by Yoon S. Park, PHD & DBA, George Washington University

VISA

 

Click to access crossborder.pdf

 

 

 

BI prepares for ASEAN integrated payment system

The Jakarta Post

Jakarta | Thu, January 30, 2014

http://www.thejakartapost.com/news/2014/01/30/bi-prepares-asean-integrated-payment-system.html

 

 

 

ASEAN Financial Integration towards ASEAN 2025:

Call for a well-coordinated supervisory and regulatory framework

Satoru (Tomo) Yamadera

 

Click to access 4.presentation_by_satoru_yamaders_adb_0.pdf

 

 

 

UK Payments Infrastructure: Exploring Opportunities

31 August 2014

 

Click to access kpmg-infrastructure-report-for-psr.pdf

 

 

 

Payment Systems in Latin America: Advances and Opportunities

By Nancy Russell, NLRussell Associates

 

Click to access la_advances.pdf

 

 

 

PROGRESS REPORT ON ESTABLISHING A REGIONAL SETTLEMENT INTERMEDIARY AND NEXT STEPS

Implementing Central Securities Depository–Real-Time Gross Settlement Linkages in ASEAN+3

CROSS-BORDER SETTLEMENT INFRASTRUCTURE FORUM

2015

 

Click to access progress-report-regional-settlement-intermediary.pdf

 

 

 

ASEAN+3 Information on Transaction Flows and Settlement Infrastructures

ASEAN+3 Bond Market Forum Sub-Forum 2 (ABMF SF2)

December 2013

 

Click to access asean3-information-transaction-flows-settlement-infrastructures.pdf

 

 

 

 

BASIC PRINCIPLES ON ESTABLISHING A REGIONAL SETTLEMENT INTERMEDIARY AND NEXT STEPS FORWARD

CROSS-BORDER SETTLEMENT INFRASTRUCTURE FORUM

2014

 

Click to access establishing-regional-settlement.pdf

 

 

 

 

ASIAN ECONOMIC INTEGRATION REPORT

WHAT DRIVES FOREIGN DIRECT INVESTMENT IN ASIA AND THE PACIFIC?

 

Geert Almekinders, Satoshi Fukuda, Alex Mourmouras, Jianping Zhou and Yong Sarah Zhou

February 2015

 

Click to access wp1534.pdf

 

 

 

 

Guidelines for the Successful Regional Integration of Financial Infrastructures

September, 2013

 

Click to access Guidelines_for_the_Successful_Regional_Integration_of_Financia_Infrastructures_DRAFT.pdf

 

 

 

ASEAN 5 Prepares for Integrated Payment System

Posted on January 31, 2014

http://www.aseanbriefing.com/news/2014/01/31/asean-5-prepares-integrated-payment-system.html

 

 

 

Establishing an integrated payment system (real-time gross settlement) in ASEAN

Kusumo Wardhono, Dwi Tjahja

 

Click to access Complete_dissertation.pdf

 

 

 

a Practical approach to International Monetary System Reform: Building Settlement Infrastructure for Regional Currencies

Changyong Rhee and Lea Sumulong

 

Click to access BRICS_ASIA_no3.pdf

 

 

 

 

Strengthening Financial Infrastructure

Peter J. Morgan and Mario Lamberte

No. 345 February 2012

 

Click to access 09869.pdf

 

 

 

 

Why Complementarity Matters for Stability— Hong Kong SAR and Singapore as Asian Financial Centers

V. Le Leslé, F. Ohnsorge, M. Kim, S. Seshadri

2014

 

Click to access wp14119.pdf

 

 

 

 

Navigating Rise of Global RMB

JP Morgan

https://www.jpmorgan.com/cm/BlobServer/Navigate_the_Rise_of_the_Global_RMB_.pdf?blobkey=id&blobwhere=1320642032360&blobheader=application/pdf&blobheadername1=Cache-Control&blobheadervalue1=private&blobcol=urldata&blobtable=MungoBlobs

 

 

 

Cross-border payment link established with Hong Kong

2014

http://www.nationmultimedia.com/news/business/aec/30239651

 

 

 

 

Hong Kong’s role in facilitating the use of Renminbi as a currency for settling international transactions

2010

 

Click to access Yip_HK_use_of_RMB_intl_transactions.pdf

 

 

 

 

TARGET2: a global hub for processing payments in euro

ECB

https://www.ecb.europa.eu/paym/intro/news/newsletter/html/mip_qr_1_article_5_target2_global_hub.en.html

 

 

 

THE EAST AFRICAN PAYMENT SYSTEM (EAPS)

 

Click to access Bosco_EAPS.pdf

 

 

 

 

Hong Kong and Thailand launch a new cross-border payment-versus-payment link

http://www.hkma.gov.hk/eng/key-information/press-releases/2014/20140728-3.shtml

Click to access r140729c.pdf

 

 

 

Settlement Systems of East Asian Economies

 

Click to access Settlement_systems.pdf

 

 

 

 

Payments in ASEAN post AEC

Vengadasalam Venkatachalam, Head of Product Management South East Asia

https://globalconnections.hsbc.com/australia/en/articles/payments-asean-post-aec

 

 

 

 

PSSR – Payments and Settlement Systems Report

Click to access psr160624.pdf

 

 

 

 

Payment, clearing and settlement systems in Hong Kong SAR

 

Click to access d105_hk.pdf

 

 

 

 

Interdependencies of payment and settlement systems: the Hong Kong experience

 

Click to access fa2_print.pdf

 

 

 

 

Payment Systems

http://www.hkma.gov.hk/eng/key-functions/international-financial-centre/infrastructure/payment-systems.shtml

http://www.hkma.gov.hk/eng/key-functions/international-financial-centre/infrastructure/financial-infrastructure-hong-kong.shtml

 

 

 

Creating an Integrated Payment System: The Evolution of Fedwire

Adam M. Gilbert, Dara Hunt, and Kenneth C. Winch

Click to access 9707gilb.pdf

 

 

 

Federal Reserve Interdistrict Settlement

 

Click to access wolman.pdf

 

 

 

TARGET2 and Central Bank Balance Sheets

Karl Whelan

1 University College Dublin New Draft

March 17, 2013

 

Click to access T2Paper-March2013.pdf

 

 

 

Ontology and Theory for a Redesign of European Monetary Union

Sheila Dow

 

Click to access 5935449525f59deca84c16c4dce251122592.pdf

 

 

 

TARGET2: Symptom, Not Cause, of Eurozone Woes

By Thomas A. Lubik and Karl Rhodes

Click to access eb_12-08.pdf

 

 

 

The Idiot’s Guide to the Federal Reserve Interdistrict Settlement Account

http://jpkoning.blogspot.com/2012/02/idiots-guide-to-federal-reserve.html

 

 

 

Mutual aSSiStance betWeen Federal reServe bankS

1913-1960 aS ProlegoMena to the target2 debate

Barry Eichengreen, Arnaud Mehl, Livia Chiţu and Gary Richardson

 

https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1686.pdf?1ad840394e67a3aedb6e1b1fa9401431

 

 

 

Interpreting TARGET2 balances

by Stephen G Cecchetti, Robert N McCauley and Patrick M McGuire

Monetary and Economic Department December 2012

 

Click to access work393.pdf

Large Value (Wholesale) Payment and Settlement Systems around the Globe

Large Value (Wholesale) Payment and Settlement Systems around the Globe

 

LVPS are managed by the Central Banks.

LVPS are Systemically important financial market infrastructure and critical for smooth functioning of the national and International financial system.

The FEDWIRE is the LVPS in the USA.  TARGET2 is the LVPS in the European Monetary Union.  TARGET2 is a unique system  as it is a common LVPS among many nations in the EMU. CNAPS is the LVPS in China.  CLS System is unique as it is a global FX settlement system.

CIPS of China and CHIPS of USA are also LVPS but are used as offshore clearing and settlement system.

 

From Reducing risk and increasing resilience in RTGS payment systems

1.1 The benefits of RTGS

Real Time Gross Settlement (RTGS) is a clumsy term for a crucial process in the financial markets. This is the reduction of counterparty credit risk by the delivery of cash or the delivery of securities in exchange for cash, instantaneously and without the netting of the obligations outstanding between the parties. Since the 1980s, the central banks which operate payment market infrastructures (PMIs)1 around the world have gradually adopted RTGS for the settlement of high value payments (HVP). Their private sector equivalents which settle low value payments (LVP) are also gravitating towards RTGS. In RTGS settlement, credit risk is reduced because cash is transferred between banks continuously in real time, transaction by transaction. Every payment is settled finally and irrevocably in central bank money, obviating the need to settle obligations between banks in batches on a net basis.

1.2 What is an RTGS?

The role of a PMI is to provide predictable and secure multilateral payment services to banks and their corporate and retail clients, usually within a single country, but sometimes across several countries within a region. They tend to divide into two broad groups.

The first are HVP systems, which settle a relatively low volume of high value and high priority payments.

The second are LVP systems, which are also known as Retail Payment Systems (RPS), because they net relatively high volumes of low value and low priority payments.

There is a further distinction to be made between HVP systems. Not all HVP systems settle on a gross basis in real time (RTGS). Some settle on a net basis, in which case they are technically described as High Value Payment Deferred Net Settlement (HVP DNS) systems. This is because settlement of transactions does not take place instantaneously but is instead deferred until transactions can be aggregated into batches, and the sums owed by one bank to another netted into a single net payment, made either at the end of the business day or at regular intervals throughout the business day. The net settlement typically takes place in central bank money at the RTGS. LVP or RPS systems tend to net transactions in a fashion comparable with HVP DNS systems. Operated mainly by automated clearing houses (ACHs), they aggregate and net transactions between banks, and then settle net amounts between banks in central bank money at the RTGS either in a single payment at the end of the business day or in multiple payments made at regular intervals throughout the day. Although a variety of net settlement systems persist, more than half the PMIs in the world are now RTGS, and even net settlement systems ultimately settle in RTGS (see Chart 1).

It follows that RTGS systems are crucial to the settlement of both HVP, LVP and CSD transactions. In fact, the purpose of every RTGS is to provide final, irrevocable settlement of transactions in a specific currency, usually through the transfer of the reserves held by banks at the central bank. They act on payment instructions, and settle transaction by simultaneously debiting the account of the paying bank and crediting the account of the receiving bank. Reserves are a vital tool of monetary policy. They are the cash balances that banks are required to hold at central banks, both to limit the ability of banks to lend deposits without limit, and to guarantee the stability of the financial system by ensuring banks can always settle their obligations to each other. This makes RTGS an essential tool for every central bank in managing the stability of the financial system, because it is a means by which it can inject and withdraw liquidity (see Chart 2).

 

From Reducing risk and increasing resilience in RTGS payment systems

lvps5lvps6

 

From Reducing risk and increasing resilience in RTGS payment systems

History and Evolution of RTGS

Since they emerged in the late 1990s, RTGS systems have become the industry standard for settlement of high value payments. In 1985, only three countries in the world operated an RTGS system. By December 1999, when the Bank for International Settlements (BIS) published the first draft of what became the ten Core Principles for Systemically Important Payment Systems, the number had risen to 25 countries. After the publication of the final version of the Core Principles, the number of countries operating RTGS systems grew exponentially (see Chart 4). In July 2000, the final version of the BIS Core Principles paper declared, “there has been extensive progress in payment system design in the course of the past ten years, notably in the development and widespread adoption of systems involving real-time gross settlement (RTGS), which can very effectively address the financial risks highlighted by the Core Principles”.3 Today, the adoption of RTGS systems continues to grow, and has reached 124 systems supporting payments in 160 countries.4

 

Regional (Cross Border) RTGS

The fact that more countries enjoy the benefits of an RTGS system than there are RTGS systems in existence reflects the fact that several RTGS systems are used by more than one country. Obvious examples include the TARGET2 system operated by the European Central Bank (ECB) in the euro-zone, the shared platform operated by the Banque Centrale des Etats de l’Afrique de l’Ouest (BCEAO) in west Africa, and the equivalent platform operated by the Banque des Etats de l’Afrique Centrale (BEAC) in central Africa.

 

Systemic Importance of RTGS

As RTGS systems are adopted by more countries, their systemic importance is increasing. Cross-border transactions mean domestic RTGS systems are also becoming part of a global network of RTGS systems, which in turn links the capital market infrastructures of each country with the capital infrastructures of every country. Domestic PMIs, CSDs and banks are now all part of a complex international eco-system.

In some parts of the world, such as the European Union and west and central Africa, RTGS systems are now formally operating on a regional basis (see Table 1). Some of these regional systems operate from a single shared RTGS platform, while others link a number of separate RTGS platforms. In these regions, it is obvious that the failure of an RTGS system can no longer be confined to one country only. But the same is true of RTGS systems everywhere. They are systemically important, and on a global scale.

 

From Global Trends in Large-Value Payments

Global Trends in LVPS

Globalization and technological innovation are two of the most pervasive forces affecting the financial system and its infrastructure. Perhaps nowhere are these trends more apparent than in the internationalization and automation of payments. The evolving landscape is most obvious in retail payments. The use of paper checks is in rapid decline or has been eliminated in most of the industrialized world. Credit and debit cards can be used in the most surprising places. Internet banking with money transfer capabilities is common, and several providers are competing to service consumers’ payments over the Internet and mobile devices.

In wholesale, or interbank, payments, the effect of globalization and technological innovation is probably less obvious to the casual observer—but it has been equally impressive. Given the importance of payments and settlement systems to the smooth operation as well as resiliency of the financial system, stakeholders need to understand and assess the potential consequences of this evolution. This article offers an in-depth look at the current environment for large-value payments systems (LVPSs). We describe ten trends common to LVPSs around the world and identify the key drivers of these developments and the most important policy issues facing central banks (see box). Furthermore, we provide empirical support for each of the trends by using numerous publicly available sources, including Bank for International Settlements (BIS) statistics on payments and settlement systems in selected countries (the “Red Book”). We focus on large-value payments systems in countries where the central bank is a member of the Committee on Payment and Settlement Systems (CPSS), a body under the auspices of the BIS (Appendix A).

Technological innovation, structural changes in banking, and the evolution of central bank policies are the three main reasons for the recent developments in large-value payments. First, technological innovation has created opportunities to make existing large-value payments systems safer and more efficient. Such innovation has also accommodated the industry’s growing need for new types of systems that are not limited to a single country or a currency. Second, the financial sector has experienced immense growth over the last few decades accompanied by changes in the role of individual firms and the products they offer. In addition, financial institutions and their services have become increasingly globalized. These structural changes have affected how participants use largevalue payments systems. Third, the role of central banks in large-value payments systems has changed significantly in recent years. Central banks have become more involved in payments systems and have created formal and systematic oversight functions. The main focus lies in promoting safety and efficiency in LVPSs and in maintaining overall financial stability. Central banks therefore have taken more active roles in monitoring existing and planned systems, in assessing systems according to international standards, and, if necessary, in inducing change.

 

From Global Trends in Large-Value Payments

lvps4

From Global Trends in Large-Value Payments

As the box illustrates, the ten trends that we describe can be assigned to three key drivers.

The first four trends

  • the diffusion of real-time gross settlement (RTGS) systems,
  • the take-off of hybrid systems,
  • the emergence of cross-border and offshore systems,
  • and the rise of Continuous Linked Settlement (CLS) Bank

are all associated with settlement technology and fall into the first category. Technological innovation has enabled new settlement methodologies to emerge that allow a better balance between settlement risks, immediacy, and liquidity requirements. RTGS systems have to a large extent replaced deferred net settlement (DNS) systems. However, the high liquidity needs associated with RTGS have led some system operators to explore liquidity-saving mechanisms and have motivated them to develop hybrid systems. Developments in payments system technology have also facilitated the emergence of systems that settle payments across national borders in one or more currencies. In addition, the clearing of payments is in some instances moving offshore and the ability of participants to connect remotely—eliminating the need for a physical “footprint” in the jurisdiction of LVPSs—is becoming more widespread. Foreign exchange (FX) settlement and counterparty risk are being managed more tightly in part because of the use of payment-versus-payment (PvP) mechanisms.1 CLS Bank operates a multicurrency payments system for the simultaneous settlement of both sides of a foreign exchange transaction on a PvP basis. With CLS Bank, existing risks associated with FX trades are virtually eliminated.

The next three trends

  • increasing settlement values and volumes,
  • shrinking average payment sizes,
  • and falling numbers of system participants

as well as the emergence of crossborder and offshore systems (Trend 3) fall into the second category. They are determined largely by how the banking sector uses payments systems and by the structural changes taking place therein. The values and volumes originated over LVPSs grew exponentially until the turn of the century. However, in terms of value, growth has since slowed and is no longer outpacing economic growth as measured by GDP.  Because many LVPSs process a large amount of relatively low-value payments, the average payment size settled has shrunk. Hence, the dichotomy between small- and large-value payments systems is not always applicable. In addition, consolidation in the banking sector has led to fewer participants in LVPSs. Structural changes have also resulted in the emergence of global banks that require a global payment infrastructure, which in turn has led to the creation of new systems that accommodate these needs.

The last three trends and the rise of CLS Bank (Trend 4) fall into the third category. They are associated with central banks’ operating policies regarding LVPSs. The service level of all systems is improving with longer operating hours. Some systems are even approaching a twenty-four-hour settlement cycle. Transaction costs in various LVPSs have been falling since the late 1990s because the savings achieved through improvements in operating efficiency have been passed on to system participants in the form of lower fees. Through the adoption of common standards, such as the CPSS’ Core Principles for Systemically Important Payments Systems, risk management in LVPSs has become more standardized. Furthermore, the central bank community was the driving force behind the development of CLS Bank.

 

These networks are also known as High Value payment (HVPS) networks.

 

List of LVPS Systems in some countries

UK

  • CHAPS Sterling
  • CHAPS Euro

Canada

  • LVTS

China

  • CIPS
  • CNAPS

India

  • RTGS

EU

  • TARGET2
  • EURO1

USA

  • CHIPS
  • FEDWIRE

International Foreign Exchange FX Networks

  • CLS

 

From Global Trends in Large-Value Payments

From  Clearing and Settlement Systems from Around the World: A Qualitative Analysis

lvpslvps3lvps2

 

From Cross-Border Inter-Bank Payments System/Wikipedia

China’s Cross-border Inter-bank Payment System (CIPS)

The Cross-Border Interbank Payment System (CIPS) is a payment system which, offers clearing and settlement services for its participants’ in cross-border RMB payments and trade. It is a significant financial market infrastructure in China. As planned, CIPS will be developed in two phases. On 8th October 2015, CIPS (Phase I) went live. The first batch of direct participants includes 19 Chinese and foreign banks which were set up in mainland China and 176 indirect participants which cover 6 continents and 47 countries and regions. On 25th March 2016, CIPS signed an MoU with SWIFT with mu- tual understanding of deploying SWIFT as a secure, effi- cient and reliable communication channel for CIPS’s con- nection with SWIFT’s members, which would provide a network that enables financial institutions worldwide to send and receive information about financial transactions in a secure, standardised and reliable environment. CIPS is sometimes referred to as the China Interbank Pay- ment System.

CIPS would not facilitate funds transfer; rather, it sends payment orders, which must be settled by correspondent accounts that the institutions have with each other. Each financial institution, to exchange banking transactions, must have a banking relationship by either being a bank or affiliating itself with one (or more) so as to enjoy those particular business features.

However, it was reported in July 2015 that CIPS would be ‘”watered down” and used only for cross-border yuan trade deals rather than including capital-related transac- tions, which would delay billions of dollars worth of trans- actions, including securities purchases and foreign direct investment, that would have gone through the system. It was reported to be a second setback to the plan to provide a unified network for settling deals in yuan after technical problems delayed its launch, and that other measures to open up China’s financial infrastructure have been dented by the 2015 Chinese stock market crash. It was said to now offer, at best, a complementary network for settling trade-related deals in the Chinese currency to a current patchwork of Chinese clearing banks around the world.[1]

 

From ECB Website

TARGET2 – Eurosystem Cross Border RTGS System

TARGET2 (Trans-European Automated Real-time Gross Settlement Express Transfer System) is the real- time gross settlement (RTGS) system for the Eurozone, and is available to non-Eurozone countries. It was devel- oped by and is owned by the Eurosystem. TARGET2 is based on an integrated central technical infrastructure, called the Single Shared Platform (SSP).[1] SSP is operated by three providing central banks: France (Banque de France), Germany (Deutsche Bundesbank) and Italy (Banca d’Italia). TARGET2 started to replace TARGET in November 2007.

TARGET2 is also an interbank RTGS payment system for the clearing of cross-border transfers in the eurozone. Participants in the system are either direct or indirect. Di- rect participants hold an RTGS account and have access to real-time information and control tools. They are re- sponsible for all payments sent from or received on their accounts by themselves or any indirect participants op- erating through them. Indirect participation means that payment orders are always sent to and received from the system via a direct participant, with only the relevant di- rect participant having a legal relationship with the Eu- rosystem. Finally, bank branches and subsidiaries can choose to participate in TARGET2 as multi-addressee access or addressable BICs (Bank Identifier Code).

Since the establishment of the European Economic Community in 1958, there has been a progressive movement towards a more integrated European financial market. This movement has been marked by several events: In the field of payments, the most visible were the launch of the euro in 1999 and the cash changeover in the euro area countries in 2002. The establishment of the large-value central bank payment system TARGET was less visible, but also of great importance. It formed an integral part of the introduction of the euro and facilitated the rapid integration of the euro area money market.

The implementation of TARGET2 was based on a decision of the ECB Council of autumn 2002. TARGET2 started operations on 19 November 2007, when the first group of countries (Austria, Cyprus, Germany, Latvia, Lithuania, Luxembourg, Malta and Slovenia) migrated to the SSP. This first migration was successful and con- firmed the reliability of SSP. After this initial migration, TARGET2 already settled around 50% of overall traffic in terms of volume and 30% in terms of value.

On 18 February 2008, the second migration successfully migrated to TARGET2, comprising Belgium, Finland, France, Ireland, the Netherlands, Portugal and Spain.

On 19 May 2008, the final group migrated to TARGET2, comprising Denmark, Estonia, Greece, Italy, Poland and the ECB. The six-month migration process went smoothly and did not cause any operational disruptions.

Slovakia joined TARGET2 on 1 January 2009, Bulgaria joined in February 2010, and Romania joined on 4 July 2011.

A unique feature of TARGET2 is the fact that its payment services in euro are available across a geographical area which is larger than the euro area. National central banks which have not yet adopted the euro also have the option to participate in TARGET2 to facilitate the settlement of transactions in euro. When new Member States join the euro area the participation in TARGET2 becomes mandatory. The use of TARGET2 is mandatory for the settlement of any euro operations involving the Eurosystem.

As of February 2016, 25 central banks of the EU and their respective user communities are participating in, or connected to, TARGET2:

  • The 20 euro area central banks (including the ECB) and
  • five central banks from non-euro area countries: Bulgaria, Croatia, Denmark, Poland and Romania.

 

From ECB website

lvps8

 

From The Continuous Linked Settlement foreign exchange settlement system (CLS)

 

Continuous Linked Settlement (CLS)

Continuous Linked Settlement (CLS) is an international payment system which was launched in September 2002 for the settlement of foreign exchange transactions. In the conventional settlement of a foreign exchange transaction the exchange of the two currencies involved in the trade is not normally synchronous. For one party to the trade there is therefore a risk that it will transfer the currency it has sold without receiving from the counterparty the currency it has bought (settlement risk). Even if a bank’s risk position vis-à-vis a counterparty is short-term, it may be many times greater than its capital. With CLS, an infrastructure has been created which eliminates settlement risk by means of a payment-versus-payment (PvP)2 mechanism.

CLS has 59 direct participants and more than 6,000 indirect participants (as of October 2009), and in 2008 it settled on average around 546,000 instructions to a value of around USD 4 trillion a day.3 Because of the vast volume of transactions on the global foreign exchange market, with its risk-reducing settlement mechanism CLS makes a significant contribution to the stability of the global financial system. By now, around a half of all foreign exchange transactions in the world are settled via CLS.4 The Swiss franc was one of the currencies settled in CLS from the very start, together with the US dollar, the pound sterling, the Japanese yen, the Canadian dollar, the Australian dollar and the euro. By now, the number of currencies settled in CLS has expanded from seven to 17. The Danish krone, the Norwegian krone, the Singapore dollar and the Swedish krona joined in September 2003, followed by the Hong Kong dollar, the Korean won, the New Zealand dollar and the South African rand in December 2004. The last two currencies up to now, the Israeli shekel and the Mexican peso, joined in May 2008.

 

From CHIPS website

CHIPS

CHIPS is the largest private-sector U.S.-dollar funds-transfer system in the world, clearing and settling an average of $1.5 trillion in cross-border and domestic payments daily. It combines best of two types of payments systems: the liquidity efficiency of a netting system and the intraday finality of a RTGS.

The Clearing House Interbank Payments System (CHIPS®1) is a funds-transfer system that transmits and settles payment orders in U.S. dollars for some of the largest and most active banks in the world. On an average day, CHIPS transmits and settles over 430,000 “payment messages”2 worth an aggregate of $1.5 trillion. It has been estimated that CHIPS carries a very high percentage of all international interbank funds transfers that are denominated in U.S. dollars. For these reasons, CHIPS has been widely regarded as a systemically important payment system, and on July 18, 2012, FSOC designated The Clearing House Payments Company L.L.C. (), which owns and operates CHIPS, as a systemically important financial market utility (SIFMU) under Title VIII of the Dodd-Frank Act on the basis of its role as the operator of CHIPS.3

The Clearing House

The Clearing House11 was founded in 1853, and is the oldest, most innovative bank association and payments processor in the United States. Established to simplify the daily check exchanges in New York City, The Clearing House later became a pioneer in the emerging field of electronic funds transfers and continues to be a leader in the payments arena, operating in addition to CHIPS, an automated clearinghouse (ACH) known as EPN (Electronic Payments Network), and a check-image clearinghouse. PaymentsCo continues to pioneer in emerging areas of the payment system in its work to protect account credentials through tokenization12 and to design and build a new low-value real-time payment system13 for the United States.

CHIPS

CHIPS is a real-time system for transmitting and settling high-value U.S.-dollar payments among its participating banks. The Clearing House began operating CHIPS in 1970 to simplify and expedite interbank payments in New York City.

Backed by over 44 years of reliable operation, CHIPS serves 49 foreign and domestic banks,14 representing 21 countries, through a network of sending and receiving devices, which range from microcomputers to large-scale mainframe computers. CHIPS participants include U.S. commercial banks and foreign banks with offices in the United States.

 

 

 

Key Sources of Research:

 

Payment and settlement systems in selected countries

Prepared by the Committee on Payment and Settlement Systems of the Group of Ten Countries

April 2003

 

Click to access d53.pdf

 

 

Payment, clearing and settlement systems in the CPSS countries

Volume 1

2011

 

Click to access d97.pdf

 

 

Payment, clearing and settlement systems in the CPSS countries

Volume 2

November 2012

Click to access d105.pdf

 

 

 

Payment, clearing and settlement systems in the United States

 

Click to access d105_us.pdf

 

 

 

Payment, clearing and settlement systems in Japan

Click to access d105_jp.pdf

 

 

 

Payment, clearing and settlement systems in the United Kingdom

 

Click to access d105_uk.pdf

 

 

 

 

 

Payment, clearing and settlement systems in India

 

Click to access d97_in.pdf

 

 

A Primer on Canada’s Large Value Transfer System

 

Click to access lvts_neville.pdf

 

 

 

Payment, clearing and settlement systems in Canada

 

Click to access d97_ca.pdf

 

 

 

Global Trends in Large-Value Payments

Morten L. Bech, Christine Preisig, and Kimmo Soramäki

2008

 

Click to access 0809prei.pdf

 

 

 

Reducing risk and increasing resilience in RTGS payment systems

SWIFT

2014

https://www.swift.com/node/4001

 

 

 

The Continuous Linked Settlement foreign exchange settlement system (CLS)

2009

Click to access continuous_linked_settlement.en.pdf

 

 

 

 

Overview of the U.S. Payments, Clearing and Settlement Landscape

2015

 

Click to access 03.Overview-US-PCS-landscape-Merle.pdf

 

 

International payment arrangements

 

Click to access d53p16.pdf

 

 

International Settlements: A New Source of Systemic Risk?

ROBERT A. EISENBEIS

 

Click to access 82b045cb0c5c7a82da1f43ff61006fe73c18.pdf

 

 

 

Clearing and Settlement Systems from Around the World: A Qualitative Analysis

 

Click to access sdp2016-14.pdf

 

 

 

SYSTEMIC RISK IN INTERNATIONAL SETTLEMENTS

ESRC Centre for Business Research, University of Cambridge

Rahul Dhumale

1999

 

Click to access wp152.pdf

 

 

PAYMENT SYSTEMS IN INDIA VISION 2009-12

RBI

 

Click to access VDF16022010.pdf

 

 

 

Payment systems to facilitate South Asian integration

 

Click to access WP-2015-021.pdf

 

 

 

PAYMENT SYSTEMS TO FACILITATE SOUTH ASIAN INTRA- REGIONAL TRADE

Ashima Goyal

September 2014

Click to access Development%20Paper_1403.pdf

 

 

 

Federal Reserve Policy on Payment System Risk

As amended effective September 23, 2016

 

Click to access psr_policy.pdf

 

 

 

Contagion in Payment and Settlement Systems

 

Matti Hellqvist

2006

 

Click to access mh.pdf

 

 

 

Overview of payment system settlement

BOE UK

http://www.bankofengland.co.uk/markets/Pages/paymentsystem/default.aspx

 

 

 

A Guide to the Bank of England’s Real Time Gross Settlement System

2013

Click to access rtgsguide.pdf

 

 

 

Evolution of payment systems in India – or is it a revolution?

Speech by Mr R Gandhi, Deputy Governor of the Reserve Bank of India

Banaras Hindu University, Varanasi, 22 October 2016.

http://www.afi-global.org/speeches/2016/10/evolution-payment-systems-india

 

 

 

How Modernizing India’s Payment System can Drive Financial Inclusion

April 26, 2016

By Sean Creehan

 

http://www.frbsf.org/banking/asia-program/pacific-exchange-blog/how-modernizing-indias-payment-system-can-drive-financial-inclusion/

Click to access Asia-Focus-Modernizing-the-Payment-System-to-Increase-Financial-Inclusion-in-India.pdf

 

 

 

Payment Systems in India: Opportunities and Challenges

DEEPANKAR ROY

 

Click to access payment-systems-in-india-opportunities-and-challenges.pdf

 

 

Payment Systems in India and Current Status: A Perspective

March 2016 by Graham Wright and Anil Kumar Gupta

 

http://blog.microsave.net/payment-systems-in-india-and-current-status-a-perspective/

 

 

 

PAYMENT AND SETTLEMENT SYSTEMS

RBI India

https://www.rbi.org.in/scripts/paymentsystems.aspx

https://www.rbi.org.in/scripts/PaymentSystems_UM.aspx

http://www.npci.org.in/aboutus.aspx

 

 

NPCI playing a key role in India’s push towards cashless economy

http://www.livemint.com/Industry/Sp5XB4G687Kq5eCAI8Y51O/NPCI-playing-a-key-role-in-Indias-push-towards-cashless-eco.html

 

 

India Has The Most Sophisticated Payments System In The World – And Six Men Made It Happen

R Jagannathan – Apr 12, 2016,

https://swarajyamag.com/economy/india-has-the-most-sophisticated-payments-system-in-the-world-and-six-men-made-it-happen

 

 

Supervision of U.S. Payment, Clearing, and Settlement Systems: Designation of Financial Market Utilities (FMUs)

 

Marc Labonte

Specialist in Macroeconomic Policy

September 10, 2012

 

Click to access 8a3d9e1f088d8cba80d4fd5cf6f28d62a462.pdf

 

 

Interdependencies among payment and settlement systems Overview of forms and

challenges for risk management

 

Denis Beau

 

Click to access slides2beau.pdf

 

 

 

SELECTED ISSUES ON LIQUIDITY RISK MANAGEMENT IN FEDWIRE FUNDS AND PRIVATE SECTOR PAYMENT SYSTEMS

TECHNICAL NOTE MAY 2010

 

Click to access FSAP_Technical%20Note_Payment%20Systems_Liquidity%20Risk%20Management_Final_5%2011%2010.pdf

 

 

 

Managing Operational Risk in Payment, Clearing, and Settlement Systems

by

Kim McPhail

 

Click to access 17521118.pdf

 

 

Interdependencies of payment and settlement systems: the Hong Kong experience

 

Click to access fa2_print.pdf

 

 

Fundamentals oF Payment systems

 

Click to access Fundamentals_of_Payment_Systems.pdf

 

 

GLOSSARY OF TERMS RELATED TO PAYMENT, CLEARING AND SETTLEMENT SYSTEMS

Click to access glossaryrelatedtopaymentclearingandsettlementsystemsen.pdf

 

 

Central bank oversight of payment and settlement systems

May 2005

 

Click to access d68.pdf

 

 

Creating an Association of Southeast Asian Nations Payment System: Policy and Regulatory Issues

Tanai Khiaonarong

No. 422 May 2013

 

Click to access adbi-wp422.pdf

 

 

 

Oversight of payment and settlement systems

2012

 

http://www.dnb.nl/en/binaries/Oversight%20of%20payments%20and%20settlement%20systems%202012_tcm47-286470.pdf?2016122522

 

 

 

Payment & Settelment System in India

 

Click to access All%20about%20Payment%20and%20Settlement%20Systems%20in%20India.pdf

 

 

 

Payment and Settlement Systems in India

VISION-2018

 

Click to access VISION20181A8972F5582F4B2B8B46C5B669CE396A.PDF

 

 

 

Clearing House Interbank Payments System (“CHIPS®”)

Self-Assessment of Compliance with Standards for Systemically Important Payment Systems

January 2016

 

https://www.theclearinghouse.org/-/media/files/payco%20files/standards%20self%20assessment%202016.pdf?la=en

 

 

 

Supervision of Payment, Clearing and Settlement

 

Click to access FSR_Supervision_of_Payment_Clearing_and_Settlement.pdf

 

 

The Continuous Linked Settlement foreign exchange settlement system (CLS)

 

Click to access continuous_linked_settlement.en.pdf

 

 

Indian Payments Industry: Mobile POS Solutions

Click to access IE%20Insight%20-%20India%20Payments%20-%20Mobile%20POS%20Solutions.pdf

 

 

 

Payment systems in Sweden

 

Click to access swedencomp.pdf

 

 

 

CIPS and the International Role of the Renminbi

January 27, 2016

By Nicholas Borst

http://www.frbsf.org/banking/asia-program/pacific-exchange-blog/cips-and-the-international-role-of-the-renminbi/

 

 

Chinese Central Bank has introduced CIPS (Cross-Border Interbank Payment System)

 

Click to access chinese-central-bank-cips.pdf

Structure and Evolution of EFT Payment Networks in the USA, India, and China

Structure and Evolution of EFT Payment Networks in the USA, India, and China

Payments Systems are going through revolution particularly in developing countries.  Since they lack the infrastructure to follow traditional options, they are opting for innovative solutions using mobile technologies and are attempting to leapfrog.  Networks through which payment transactions are processed are equally important.

Below is a brief introduction to EFT networks used in payments industry in USA, India and China.

 

From A Guide to Debit and ATM Card Industry

EFT (Electronic Funds Transfer) Networks in USA

EFT networks are the telecommunications and payments infrastructure linking consumers, ATMs, merchants, and banks. The physical components consist of ATMs, POS terminals, telecommunication connections, apparatus that route transaction information to appropriate parties, and computers that store deposit and transaction information. Two characteristics of an EFT network distinguish it from other payments systems that may use similar physical components. First, transactions are PIN-based. Second, consumer accounts are immediately debited (funds are immediately transferred from demand deposit accounts).

There are two types of EFT transactions. The first are ATM transactions. The second are online debit transactions at POS terminals. EFT networks can be used for either ATM transactions or online POS debit card payments or both. In practice, most EFT networks process ATM transactions, and a subset of these also processes POS transactions. A few EFT networks have been devoted solely to POS transactions.

EFT networks are typically separated into two types. Regional EFT networks serve specified regions of the United States. There are three large regional networks: NYCE, Star, and Pulse. The NYCE network serves primarily the Northeast and Midwest, Star serves the West and the midsouth Atlantic regions, and Pulse serves the Central and Southern regions. Today it is something of a misnomer to call these large networks regional because they have grown to the point of near-national coverage. Examples of smaller regional networks include Shazam, located primarily in the Midwest, and Presto, serving the Southeast.

National networks are fewer in number than regional network but are distinguished by their national territory. National territory does not necessarily translate into large size. The Armed Forces Financial Network is comparable in size to some of the larger regional networks, but its mission of serving the armed forces community leads it to a national geographic territory. Visa and MasterCard operate EFT networks that are truly national in size and territory. Each uses its own physical infrastructure to run ATM and POS transactions, and for marketing purposes their ATM and POS networks carry different names. Visa’s Plus and MasterCard’s Cirrus are ATM networks, while Visa’s Interlink and MasterCard’s Maestro are POS networks.

Another important distinction for national networks is that they may serve as a bridge between regional networks. If a transaction conducted on a regional network is initiated using a card from another regional network, a national network may link the two regional networks so that the transaction information may be routed from one regional network to the other. In a sense, national networks serve as networks of networks.

There are many types of ownership and membership structures among EFT networks. A single bank may own a shared network, but ownership by multiple banks is more common, a legacy of the fact that many of the first shared networks were typically joint ventures among banks. Some of these joint ventures included many banks, while others had a few. Nonbank ownership of networks ranges from complete ownership of the network (as with Concord EFS’s Star network) or as a joint venture with banks (such as First Data and NYCE).

Membership in an EFT network is typically limited to financial institutions (banks, savings institutions, and credit unions) and can be, but is not necessarily, tied to ownership.

Offline debit card networks

The second component of the ATM and debit card infrastructure is offline debit card networks. Offline debit card networks are a telecommunications/payments infrastructure linking consumers, merchants, and banks. There are two offline debit card networks, one run by Visa and the other by MasterCard, which essentially piggyback off the card associations’ credit card networks. Visa has named its offline debit product Visa Check Card and MasterCard refers to its product as MasterMoney.

The physical components of the offline debit network consist of POS terminals, telecommunication connections, apparatus that route transaction information to appropriate parties, and computers that store deposit and transaction information. Information necessary for the authorization of an offline debit transaction as well as information for processing the payment follow the same infrastructure routes as for credit card transactions.

Two characteristics distinguish offline debit transactions. First, transactions are signature- based. Second, consumer accounts are debited one or two days after the transaction (that is, there is a lag before funds are deducted from demand deposit accounts).

To complete this section, it may be useful to emphasize the similarities and differences between online and offline debit transactions. Both transactions are conducted at a POS terminal. Both represent payments in exchange for goods or services. But online debit requires the use of a PIN and funds are debited immediately, while offline debit does not require a PIN and funds are not debited immediately. Online debit transactions are processed over an EFT network. By contrast, offline debit transactions are processed over credit card networks. Online debit allows the consumer to obtain cash back at the point of sale, while offline debit does not. Finally, consumers and merchants face differing fees for online and offline debit (detailed in Chapter 4).

 

From Point of Sale (POS) Systems and Security

pos1pos2

 

Debit Cards and ATM Networks

A.  Regional EFT Interbank Networks

  • Concord STAR
  • NYCE
  • Pulse
  • Shazam
  • Presto

B.  National EFT Interbank Networks

  • Visa Plus
  • Mastercard Cirrus

C.  Hardware

  • ATM Machines

 

Debit POS (Point of Sale) Networks (PIN based)

Transactions are processed over EFT Network

A.  Networks

  • Visa Interlink
  • Mastercard Maestro

B.  Hardware

  • VeriFone
  • FirstData
  • Ingenico
  • Eposnow (iPad)
  • DucePos (iPad)
  • Revel (iPad)
  • ShopKeep (iPad)
  • Instore (iPad)
  • Lavu (iPad)
  • OrderBird (iPad)
  • Touch Bistro (iPad)
  • SalesVu (iPad)

 

Offline Debit Card Networks (Signature Based)

Transactions are processed over Credit Card Networks

  • Visa Check Card
  • Mastercard MasterMoney

 

 

EFT Networks in India

India is mostly cash based economy.  Manual Paper based and Wooden Drawer based Cash Registers are the predominant form of payment transactions systems.

In last few years, many innovative solutions have come up but penetration is very low.

Issues of Data Privacy and Cybersecurity are not yet on the minds of Developers of these new solutions.

Regulations and Oversight of these newer platforms is non existent.

People use debit cards predominant to withdraw cash from ATM machines.  Online payment transactions are done for paying utilities bills and making bookings for Air, Train, and Bus Transportations.  Credit cards are used by very small segment of people in cities.

 

From Innovative payment systems for financial inclusion

Innovative payment systems for financial inclusion

  • Over INR 8743 bn in payments to be made through prepaid Instruments in FY20
  • India Point of sale terminals lowest amongst BRIC nations
  • Overall business opportunity for business correspondents estimated at INR 567 bn per year and revenue opportunity for POS –related shared services at INR 16 bn per year

24 OCTOBER DELHI/MUMBAI:

Disruptive game changing innovations in the payment systems will be critical to accelerate financial inclusion agenda of India, states a latest report on financial inclusion by EY, the global professional services organization. The report titled ‘Accelerating financial inclusion- The role of payment systems’, was released at a global conference on Financial Inclusion and Payment Systems in Delhi today.

The report aims to provide an outlook on India’s financial inclusion agenda, the growth drivers for its success and the supporting infrastructure that will be needed. As per the report, with current trends like growing urbanization, rising middle class and aspirations, this is the right time to tap the large unbanked population of India.

Mahesh Makhija, Partner – Advisory (Financial Services), EY says, “India is an exceptional country with unique consumer needs. To accelerate financial inclusion in India, we will need to understand what combination of payment products and services will work in the Indian context. Innovations in payment systems will occur at the intersection of different industries like financial services, telecom and retail.”

The report lists 6 key elements that make up the financial inclusion agenda of India:

New game, new rules — evolving prepaid instruments landscape in India

Prepaid Instruments (PPI) are at their nascent stage in India, but have the potential to play a vital role in the country’s struggle to reduce dependence on cash in its economy, says the report. EY estimates that although prepaid market represented only 3.62% of the Indian card market, this will increase dramatically over the next decade. EY recommends that the Government look closely at PPI’s as an option to disburse Government benefits (currently estimated at INR 4800 billion). Market growth in PPI’s will also emanate from the proliferation of m-wallets, money transfer and other new applications of the product. According to the report, these new segments are expected to collectively contribute 47% of the prepaid market in FY 20. Over INR 8743 billion in payments is likely to be made through PPIs in FY 2020. This will be more than 12 times the volumes in FY2013.

Rethinking mobile money — the case for electronic rupees issued by the RBI

Mobile money has the power to democratize banking in India by bringing large numbers of the country’s unbanked population into its formal financial system. As per the report, almost 83% of India’s population is expected to own and use mobile phones by 2014. However, for several reasons mobile money adoption in India has been low. Consumers and merchants are not incentivized to make the transition to mobile money and Banks and Telco’s have adopted a ‘wait and watch’ approach. According to the report, the challenge is to take a transformative step that will lead to a paradigm shift in the mobile money paradigm. One such step would be creation of electronic rupee. These would be issued by the Reserve Bank of India as legal tender, just as it currently issues currency notes and coins.

“We think that the creation of electronic rupee is a transformative solution to today’s issues with mobile money in India and in fact across the globe” said Mahesh.

Enabling payments —increasing Point Of Sales (POS) penetration in India

As financial inclusion gathers momentum, there is an urgent need to enhance POS acceptance infrastructure in India. India still has one of the lowest number of POS terminals (per million people) in the world. According to the report, penetration of POS terminals is only 693 per million of India’s population, compared to similar emerging countries such as Brazil, which has 32,995 terminals per million people and China and Russia, each of which has around 4000 terminals per million people. India’s POS landscape is characterized by a large skew in favor of urban locations-more than 70% of the POS terminals are installed in the top 15 cities contributing to over 75% of the total volumes at POS. Moreover, only 1.1 million of the more than 10 million retail touch points have POS installed for electronic payments acceptance. Technology will play an important role with the implementation of new POS capabilities. Large urban retailers seek technologies like Mobile POS (Mpos) which help them in “line-busting” whereas the smaller merchants seek a cheap and easy-to-use solution like a card-reader attached to a phone. Rural merchants on the other hand are likely to adopt biometric POS terminals, which enables them to accept Aadhaar enabled debit cards that are likely be issued in large numbers for financial inclusion. As per the report, there could be close to 3.5 million POS in the next five years if necessary initiatives and actions are taken to increase the POS penetration.

Evolving payment ecosystems – shared services models for inclusion and growth

The report states that to enhance their reach, banks are introducing payment ecosystems that work across organizational boundaries to deliver innovative payment services. The report discusses 7 different models of shared services that Banks are leveraging aimed at acquiring, engaging and retaining customers. EY estimates the overall opportunity for shared services like business correspondents at around INR567 billion per year in the next 2-3 years and an overall revenue opportunity of INR16 billion per year for POS-related shared services by 2018 at the present rate of growth in card-related transactions and merchant terminals.

Pathways to excellence — the transformation agenda for banks

Changing consumer behavior, the increasing urgency of financial inclusion and ubiquitous mobile telephony are powerful external factors that will transform the Indian payments industry over the next 10 years. In the last decade, India has witnessed significant achievements in its efforts to migrate from traditional payment methods through cash to modern electronic payment systems. In 2012 the percentage of non-paper based payments transactions was 48% up from 27% in 2008. While there has been significant progress made on various parameters, a lot still needs to be done in the next few years. According to the report, India is at an interesting point in its payments journey wherein the foundation is laid, but its future growth will depend on innovation in products, business models, consumer interfaces, security and infrastructure under the umbrella of enabling regulations.

Cashless in India – Government imperatives to promote electronic payments

From taxes to social welfare benefits, the Government of India cumulatively receives and disburses billions of rupees to and from its citizens. The Interbank Mobile Payment Service and Aadhaar Enabled Payment System platforms have the potential to integrate the payment systems of various Government to Public (G2P) schemes and enable mobile phones to be used as front-end technology instruments states the report.

By digitizing this flow of money, the Government can lead a strategic shift from the high dependence on cash to a more efficient, electronic payment system, which leverages online and mobile channels to cut costs and bring social benefits to millions.

The establishment of a strong payment and settlement framework and associated enabling institutions has aided a conducive environment for financial inclusion in India.

 

From Why it is difficult to scale POS machines in India

Why it is difficult to scale POS machines in India

Shashidhar KJ October 19, 2016

Earlier this month, the Reserve Bank of India (RBI) said it would be setting up an acceptance development fund (ADF) to boost the card payment infrastructure in the country. The proposed ADF which will be funded by card issuers to build a corpus by diverting a percentage of their transaction revenue into the fund. Money from the fund is then invested in structured initiatives to expand acceptance infrastructure such as POS terminals.

We have the dubious honour of having one of the lowest POS terminal penetration, according to an Ernst and Young report. The report said there were only 693 machines per million of India’s population, compared to similar emerging countries such as Brazil, which has 32,995 terminals per million people and China and Russia, each of which has around 4000 terminals per million people.

This was back in 2015 and the number of POS machines issued from banks has improved to over 14 lakh in July, as shown by RBI data.

Isn’t it odd that there are over 697 million debit cards and 25.94 million credit cards and there are only 14,43,899 POS terminals in the country?

Indeed, the RBI, in its concept paper to boost card acceptance, points out that people primarily used their debit cards to withdraw money from ATMs.

Closer look at POS terminal data

However, a if we look at closer at the POS terminals deployed in the country, we see a curious concentration. The top banks in the country – State Bank of India, ICICI Bank, HDFC Bank, Axis Bank and Corporation Bank – have the highest number of POS terminals accounting for 80.94% of all terminals in the country.

The RBI counts 56 scheduled commercial banks in the country. Not to mention that there are 56 functioning regional rural banks and 93 cooperative banks.

It’s interesting to note that the banks mentioned above generally have a well developed credit card business portfolios which contribute to their balance sheet in a significant way.

Enter the MDR

An explanation for the skew of POS terminals within these banks could be that they get to charge merchants a higher merhcant discount rate (MDR), an inter-bank interchange fee, for credit card transactions.

The MDR is fee collected by banks from merchants for a card transaction. When a customer uses a HDFC Bank credit card on a POS terminal, the merchant is charged a fee to settle the payment in another bank.

Typically banks charge around 2-2.5% per transaction on credit cards. However, the RBI has capped the MDR for debit cards at 0.75% for transactions below Rs 2,000 and 1% for transactions above Rs 2,000.

The devil, however, lies in how the MDR is split between the bank issuing the card and bank accepting the payment. For credit cards, the issuing bank gets around 1.8% of the 2-2.5% MDR. Meanwhile for debit card transactions, issuing banks make around 0.5% out of the 0.75% interchange fee.

No incentive to develop the system

Currently, other banks (public, regional and cooperative banks) have no incentive to develop card acceptance networks. They are not interested or do not have the expertise to develop a credit card business to command a higher MDR. They would rather have their customers use debit cards as a dumb instrument to withdraw cash at ATMs instead.

Rahul Kothari, vice president and head of business at PayUbiz explained that banks look at POS as a means to retain customers through current accounts and offer them other products.He added that right now there is no level playing field between third party companies who develop POS solutions and banks. RBI guidelines say that third party companies need to take permission from banks to process POS payments, Kothari added.

Third party POS players in India include PayU, MSwipe, Ezetap and Oxigen.

Industry sources also pointed out that banks charge around 5-10 basis points (bps) for getting a bill of sponsorship to handle POS payments. MediaNama was unable to independently verify this.

What needs to be done

There needs to be a more equitable distribution of the MDR between banks which will open up competition between smaller banks who will now have a reason to build their card acceptance networks. To an extent, the ADF aims to do that by taking a portion of the fees got by the issuing bank and put it into a corpus to get more POS terminals in the country.

However, the RBI should ensure that the proceeds of the fund should go to banks who do not have a proper card acceptance network.

Secondly, third party POS players must also be brought into the discussion. For example, Oxigen has a product called Super POS which also doubles as a mini ATM and has biometric and Aadhaar authentication. The RBI recently issued a notification which instructed banks to upgrade ATMs and POS machines to accept Aadhaar. Banks should figure out a way to work with non-bank entities to push for a cash less environment.

Perhaps, banks can employ third party players as banking correspondents in rural areas and get give a cut from the MDR to them.

What about QR codes

Paytm has an interesting approach to offline merchants. Recently the company announced that it has more than a half a million offline merchants. Paytm’s offline merchants have a QR code which a customer has to scan on the app to make a payment. Effectively, it has turned the POS system on its head by cutting the costs of installing and maintaining a POS terminal.

Once a customer decides to move his/her money to a bank account, they need to pay a fee of 1% to Paytm which is considerably lesser than the MDR charged by banks. I spoke to a mom-and-pop shop owner in the neighbourhood who said that this was a lot more cheaper than the costs associated with cards. He explained that he wants acceptance of Paytm to increase so that savings on transactions will be reduced.

To sum up

There are a number of factors which are inhibiting the growth of POS terminals in India:

– Allowing only banks to lead the way on POS.
– The bank interchange fee (MDR) for merchants is too high.
– The cost of handling and maintaining machines are an added cost for merchants.
– The split of MDR disproportionately favours the banks issuing cards. There needs to be a more equitable distribution of the fee between the issuing bank and the accepting bank.

 

From Paytm has more offline merchant transactions than online: CEO Vijay Shekhar Sharma

Paytm has more offline merchant transactions than online: CEO Vijay Shekhar Sharma

Shashidhar KJ September 26, 2016

We’ve been seeing Paytm stickers coming in offline stores all over, at least in Delhi, Mumbai and Bangalore. In the month of August, Paytm’s offline merchant transactions exceeded online transactions on the platform, CEO Vijay Shekhar Sharma (VSS) told MediaNama, and a large part of this has been owing to a change in technology approach by the company. The company claims over half a million offline merchants now. Edited excerpts from MediaNama’s interview with VSS:

Took a call to focus on offline in 2016: “Every year we pick up a theme. When we first started, it was online recharges, the second year was online payment. Now, this year when we started we thought we would take up offline as a plan that we would have Paytm in every nook and corner (of the country). We thought that after Paytm, there should not be any pain-point left for anyone else to solve.

Online is great, online is nice and but this is where the bus is moving. But ultimately there is a larger customer base and transaction base which happens in the offline world. It was a very, I would say, uncanny for an online company to think of offline.

So we built our own software where we can track offline signups, sales-force automation and a lot things, so that we are disciplined. And I think we have more than half a million merchants signed up.

Update: VSS has clarified that the company refers to a transaction as “offline” when the merchant doesn’t have their own application, and is integrated only using the QR code, and not via the API. Thus, these will not include transactions made on the Uber app.

Dumb card, smart POS; smart phone and dumb POS: “I mean if you look at it, first of all, our understanding is that we have a different process versus other offline payment methods. Offline right now is dominated by Visa and MasterCard. American Express is also very small.

But the consumer has a dumb device called card, and what merchants carry is a smart device called POS with Internet connection. So, we are changing that structure. We are saying that merchant will not have a smart device or Internet connection, and consumer will have that. So payment happens via a QR code and the processing happens on the consumer side.

NFC versus QR code: “I think we saw it first in China, where QR codes dominate massively, and we had discussions with our friends in China (Alibaba) on why they chose to have QR code. I have personally have been a total non-believer of QR code in advertising, but when it came to payments it became important because the consumer and merchant have to communicate in a non technical way,and some way for the data to be given from consumer to merchant easily.

Whether you look at NFC, there is an investment that the merchant has to do. And if you use the smartphone as a consumer device the cost structure works in reverse in our case. The idea that we had is that every smartphone, technically, might not have NFC. But every smartphone does have a scanner.

So on the Paytm app, when you click on pay, the QR code scanner comes up.

Challenges in going offline: “So, it was three layers of new things. One for the consumer, it was new because they have never gone in the offline world and paid in any online payment instrument. We had to help with consumer mindset. Second is towards the merchant who are okay with cash and have no obligation to build a non-cash business. The third was that we had chosen a new technology, where the consumer and the merchant had to learn. But the thing that we found out was, in the end, it was so fast that I don’t think OTP or NFC or any other thing like MMID will work.

The point is that this is tokenization for your digital wallet.”

Sector choices for offline rollout: We started with the transportation vertical – autorickshaw, taxi, Uber, parking or petrol pump – where there is a lot of sale. Second place where we found the spends were in the groceries, fruits and vegetables etc and the third category was discretionary spends which was like shopping, quick service restaurants and restaurants. So we created three beats for these.

Our approach was that Delhi is the first city where you have to find the correct solution. Because in verticals like in parking, there would be Internet connectivity problems, while in QSR, payments need to happen very fast, and OTP would be very slow.

So we built the beta run in one city and then went to multiple cities. There is a team which builds solutions, and there is a second team which takes it to the market.

The teams which go to market look at top cities, mid-tier cities and long tail cities. We found it very surprising that in long tail cities, it increases sales for a merchant when they say that they accept Paytm.

There is also a number where you can dial and say that you want Paytm, and through this tens of thousands of merchants have been signed up. Consumers and merchants reach out to us just because somebody else has used it. Then there is a front-tail where we go to the shop, and we explain to them what the product is where they do merchant on-boarding, verification and give them QR codes. So two different processes, but both require the merchant to be on-boarded with full verification and documentation.

Merchant transaction charges: In our case, the merchant pays 0%. So consumers will load money through credit cards and debit cards and pay to the merchant. So effectively, the merchant is effectively receiving credit and debit card payments at 0%. We make money which comes through the wallet, which is used on the Paytm network.

Another interesting thing is the money these merchants receive goes back to the network to be used and only 5% is sent back to the bank account.

(Editor’s note: Paytm charges charges 4% for wallet-to-bank account transfers for customers who have not completed their KYC and 1% for KYC compliant customers. That still is effectively lesser than card companies who effectively charge around 2.5% on transactions)

Paytm by the numbers

Paytm wallet users: 140 million
Monthly transactions: 75-90 million (as per media sources)
GMV (current): $5 billion
GMV projected by financial year end: $10 billion
Offline merchants: 500,000
Monthly offline transactions: 10 million per month
Employees: 4,500
Payments bank launch: Diwali 2016
Investors: Ant Financials (AliPay), Alibaba Group, SAIF Partners, Sapphire Venture and Silicon Valley Bank

Online vs offline growth: Our online was a bit like iOS growth. One successful merchant gave us another one. While with offline, it was more like Android growth: it just grew very fast. In the month of July, we just had it at the same level between offline and online. And in August offline overtook online. Basically now, Paytm does more offline merchant transactions than online.

Recharge now constitutes less than 20% of our business. That number is very small now because we have created so many uses cases. One thing we found out was, when you give your payment system to a merchant, the merchant’s experience becomes a part of the total experience. Consumer might prefer to pay through an instrument, but the process to reach the merchant payment instrument is so difficult, that the consumer might give up before that. We found out that the payment system should be there on the merchant’s side.

Concentration of cities & Ticket sizes: “Right now we are there in about 900 cities and towns. When we look at our payment consumer, where the median is bigger, as expected, it is coming from cities where the Internet connectivity is there. So top 10 cities will be constitute about 50%. Online transactions go through ecommerce merchants and have a larger ticket size. But if you look at offline transactions, payments in offline usage of wallet, there is a smaller order value.

 

From RBI concept paper looks to boost card payments at POS terminals

RBI concept paper looks to boost card payments at POS terminals

Shashidhar KJ March 11, 2016

The Reserve Bank of India came out with a concept paper earlier this week for improving the card acceptance infrastructure and is seeking comments, suggestions and views from relevant players on the same.

“The “economics” of card payments plays an important role in ensuring greater and wider participation of all stakeholders involved in the card payments value chain and, as such, any strategy geared towards expansion of the infrastructure in a “managed” way has to also address these issues,” the RBI said.

Accordingly, the RBI has outlined a broad strategy to enhance the growth in acceptance infrastructure through POS terminals and usage of cards which includes further rationalisation of merchant fees for debit card transactions. Here are some of the take aways from the paper:

Card payments in India

– The RBI noted that growth in electronic payments is not uniform across all segments nor is it visible at all locations across the country. Particularly, in the context of cards, while the card base is increasing rapidly, activation or usage rates are quite low, especially for purchase of goods and services. Card usage at ATMs, on the other hand, is quite high.

– Debit cards registered a growth of 64% between Oct 2013 and Oct 2015 while credit cards grew at 23% during the same period. As at end-December 2015, the total number of credit cards stood at 22.74 million while debit cards stood at 636.85 million cards in the country.
– Between Oct 2013 and Oct 2015, ATMs increased by around 43% while POS machines increased by around 28%. As of end-December 2015, the number of ATMs has increased to 193,580 while POS machines had increased to 1,245,447 in the country.
– From April 2015 to December 2015, the usage of debit cards at ATMs continues to account for around 88% of the total volume and around 94% of total value of debit card transactions. Usage of debit cards at POS machines accounts for only around 12% of total volume and 6% of total value of debit card transactions.
– From April 2015 to December 2015, credit card usage at ATMs accounted for around 0.73% of volume and 1.25% of value of total credit card transactions. Use of credit cards for POS transactions accounted for 99.27% of volume and 98.75% of value of total credit card transactions in the country.
– While almost every bank is a card issuer, very few banks are engaged in the activity of merchant acquiring and setting up of card acceptance infrastructure. Thus, there is concentration in acquiring business with the top 5 acquirer banks accounting for nearly 81% of the POS infrastructure and top 10 acquirers’ share of POS being above 90%.

– The number of merchant establishments accepting card payments has increased from 0.85 million merchant establishments in Oct 2013 to around 1.15 million establishments in Oct 2015, a growth rate of 34%. As on Dec 2015, the number of such merchant establishments was 1.26 million.

Factors inhibiting growth for card acceptance

– High cost of acquiring business that include high capital cost of POS machine, recurring maintenance, difficulty of servicing POS machines in rural areas.

– Low utilization of cards makes acceptance for small merchants and in rural areas unviable due to low card footfalls and low transaction values besides other costs associated with merchant acquiring, ultimately forcing acquiring banks to withdraw the POS terminal.

– Lack of adequate and low cost telecommunication infrastructure

– Lack of incentive for merchants to accept card payments is another inhibiting factor. Further, transparency and audit trails associated with card payments often act as deterrent for accepting card payments by merchants.

– Insufficient awareness about the costs associated with use of cash apprehension of using non-cash payments, especially concerning its safety and security, anonymity associated with cash payments, surcharge and convenience fees being levied for use of card and electronic payments, difficulties in changing consumer behavior, etc. also inhibit growth / usage of card of payments for purchase of goods and services.

– Merchant Discount Rate (MDR) also often acts as a disincentive.
Strategies for enhancing acceptance

Mandate installations of POS terminals in proportion to cards issued: The RBI said that banks issuing cards should install proportionate number of POS terminals to the number of cards issued. However, it noted that not every bank is equipped to run merchant acquisition business. The lack of expertise may lead to some banks entering this business through outsourcing model which later might prove costly.

Setting up of Acceptance Development Fund (ADFs): The RBI also mooted for setting up an ADF where different stakeholders in the card payment chain come together to set up a program to encourage wider deployment of card acceptance infrastructure. These are generally funded by card issuers to build a corpus by diverting a percentage of their transaction revenue into the fund which is then invested in structured initiatives to expand acceptance infrastructure.

ADFs are usually managed by third parties who establish the framework for use of funds which include subsidies for installation of terminals, development of new technologies / segments / geographies, marketing and education to increase awareness for acceptance as well as for usage.

Rationalisation of Merchant Discount Rate

The major source of revenue in the card business is the Merchant Discount Rate (MDR) or Merchant Service Fee. MDR comprises other cost segments such as the interchange fee (fee paid by acquirer to card issuing bank), processing and other fees payable to the card network, and other costs incurred by the acquirer along with acquirer’s margin. The RBI has proposed a number of options for the rationalization of the MDR some of them are:

Uniform MDR across all merchant categories & locations proportionate to transactions size: RBI had fixed a cap on MDR for debit card usage as

  • not exceeding 0.75% of the transaction amount for value upto Rs. 2000/-
  • not exceeding 1% for transaction amount for value above Rs. 2000/-

This is basically maintaining status quo for the regulatory structure. However, the growth in deployment of POS terminals has come down as lower MDR was cited as on of the reasons making the business unviable.

Differentiated MDR at select merchant categories at all locations: Another approach is to have a differentiated MDR framework for some select merchant categories across all locations. For example, some merchant categories could include utility bill payments (electricity, water, gas, telephone), municipal taxes, primary hospitals and health centres, primary educational institutions, public distribution system outlets ( like ration shops), fertilizers, seeds and similar agricultural products, public transport, etc.

Differentiated MDR at select merchant categories in Tier III to VI locations: An another alternative is to rationalise MDR in select categories in Tier III to VI locations with the objective of ensuring wider deployment of POS terminals.

 

From Update: Card payments on POS terminals suffered outages and failures over the weekend

Update: Card payments on POS terminals suffered outages and failures over the weekend

Shashidhar KJNovember 14, 2016

Update: MediaNama spoke to Manish Patel, CEO of POS machine company Mswipe who spoke told us that card networks are unable to deal with the sudden surge in payments on their networks. He added that on Saturday between 7 pm to 9.30, pm Visa’s servers failed but POS machines were still able to process payments from MasterCard.

MediaNama was unable to independently verify this but we have written to Visa and will update once we hear from them.

Meanwhile, Mswipe said that it saw a huge surge in the number of transactions it processed. Typically, Mswipe processes 45,000-50,000 transactions a day. On Friday, this number went up to 1 lakh transactions and to 1.25 lakh transaction on Saturday. On Sunday, Patel added the number of transactions went above their capacity to process them and that they are currently adding more capacity.

Earlier: POS terminals across the country suffered outages for several hours over the weekend and many card transactions were declined according to multiple people who spoke with MediaNama. For example, card transactions at a restaurant in Mumbai’s Mulund West was down from 7 pm to 10 pm on Friday, and there was a similar outage the next day. The restaurant owner told MediaNama that he had contacted ICICI Bank about the outages, and they attributed it to the demonetization drive, saying they needed some more time to recalibrate. Many stores in the neighbourhood also could not process card payments, and insisted that customers pay by cash. MediaNama’s Salman SH and Sneha Johari reported similar outages in Bangalore and Pune.

Also read: MediaNama’s Demonetization Liveblog, with the latest updates.

In Bangalore, a pubs POS terminals were down on Saturday morning. The pubs owner also said that he had to to accept bank transfers from customers to his account. The owner added that all six POS terminals were down due to increased volumes on card payment networks. The POS machines displayed an error code “server down”.

On Sunday, Damodar Mall, CEO of Reliance Retail tweeted about card payments getting declined and appealed to ICICI Bank and HDFC Bank for help.

We have written to ICICI Bank, HDFC Bank and Axis Bank for comments regarding the outages. Meanwhile, State Bank of India (SBI) tweeted that it processed 10.05 lakh POS transactions on Sunday. To give context, SBI processed 3,25,00,690 debit card transaction over POS terminals in July, according to RBI data.
Meanwhile Rahul Kotari, business head of PayUbiz, told MediaNama that the payment gateway has seen a spike in the number of transactions from around 750,000 a day to 1.5 million a day following the demonetization. Note that PayU also has a POS machine for offline transactions and process them through its payment gateway. He added that the payment gateway is built to handle five times its current load and is increasing it to 10 times anticipating a surge in online transactions. Kothari added that the company is considering deploying QR codes in the short term for offline merchants to help ease the pain of doing business.

Asymmetry in POS terminals

As we have pointed out many times, India has the dubious honour of having one of the lowest POS terminal penetration, according to a 2015 Ernst and Young report. The report said there were only 693 machines per million of India’s population, compared to similar emerging countries such as Brazil, which has 32,995 terminals per million people and China and Russia, each of which has around 4000 terminals per million people.

The Reserve Bank of India’s data shows that there are over 697 million debit cards and 25.94 million credit cards and there are only 14,43,899 POS terminals in the country.

A closer look at the POS terminals deployed in the country, we see a curious concentration. The top banks in the country – State Bank of India, ICICI Bank, HDFC Bank, Axis Bank and Corporation Bank – have the highest number of POS terminals accounting for 80.94% of all terminals in the country.

 

From Paytm Has Just Created Millions Of PoS Across India With A Single Move; Every Paytm User Can Now Accept Card Based Payments

Paytm Has Just Created Millions Of PoS Across India With A Single Move; Every Paytm User Can Now Accept Card Based Payments

Paytm has just created millions of Point of Sales (PoS) across the nation, with one strategic move. Now, anyone with a merchant account with Paytm can receive payments via debit card/ credit card, which means that digital payments have been super-simplified and scaled beyond imagination.

This is certainly one of the masterstrokes by Paytm for encouraging even more digital transactions and a good move towards an absolute cashless economy.

Paytm founder Vijay Shekhar Sharma said, “India needs a very innovating mobile pos machine and Paytm has already been accepted by many merchants. By extending our merchant network to all other payment networks, we are enabling digital payments to a very large number of Indians.”

How Will It Work?

Suppose you visit a local grocery shop to purchase few items and the shop-keeper has a Paytm account. Now, there can be two scenarios: Either you also have a Paytm account, which means that you can simply transfer the amount. Or, you don’t have a Paytm account, but have debit/credit card to make the payment.

In this case, the merchant can accept your debit/credit card via his Paytm app, and complete the payment.

This is how it will work:
Step 1: The merchant raises the bill, and gives you his phone wherein you enter your debit/credit card number

Step 2: The customer receives an OTP on his mobile number

Step 3: Enter the OTP inside merchant’s Paytm app

Step 4: Payment complete

Till December 31, there would be no fees for such card based transactions on merchant’s Paytm app. The new version of the app has been updated, and under ‘Accept Payment’ tab, merchants can receive payments from cards issued by Rupay, Visa, MasterCard and Maestro.

Big Boost For Cashless Economy

There are around 150 million users of Paytm, and almost 1.5 million merchants registered with the. With one single step, these 1.5 million merchants can now accept debit and credit based payments, thereby transforming into a live PoS, instantly.

Besides, RBI has recently increased the limit for merchants to Rs 50,000 per month, which means that they can send upto Rs 50,000 from Paytm app to the bank, without KYC. This, along with PoS transformation means that merchants would now prefer Paytm mode of accepting payments (both from credit/debit card or peer-to-peer money transfer).

Merchants can register with Paytm by visiting here.

Paytm is expecting atleast 10-15 million more merchant accounts after this decision to convert apps into PoS. We will keep you updated as more details come in.

 

 

Debit and Credit Card Networks

  • Visa
  • Mastercard
  • American Express
  • Discover
  • Diners Club
  • RuPay

Government of India Networks

  • IMPS (Immediate Payment Service)
  • NEFT (National Electronic Funds Transfer) -Online Banking Transfer
  • NFS (National Financial Switch) – ATM (Automatic Teller Machines) Network
  • SBI Chhota (little) ATM (using POS devices for Cash)
  • RTGS (Real Time Gross Settlement System) – Large Value Real Time Network
  • UPI (Unified Payment Interface) -using BHIM app
  • NACH (National Automated Clearing House)
  • AEPS (Aadhaar enabled Payment System) -MicroATM
  • BBPS (Bharat Bill Payment System) – for paying Utilities Bills
  • RUPAY – Credit and Debit card network
  • *99# (uses USSD channel)
  • *99*99# (Uses USSD channel)

 

NFS in India 

National Financial Switch (NFS) is the largest network of shared automated teller machines (ATMs) in India.[1] It was designed, developed and deployed by the Institute for Development and Research in Banking Technology (IDRBT) in 2004, with the goal of inter-connecting the ATMs in the country and facilitating convenience bank- ing. It is run by the National Payments Corporation of India (NPCI).

 

AEPS from NPCI website

In order to further speed track Financial Inclusion in the country, Two Working Group were constituted by RBI on MicroATM standards and Central Infrastructure & Connectivity for Aadhaar based financial inclusion transactions with members representing RBI, Unique Identification Authority of India, NPCI, Institute for Development and Research in Banking Technology and some special invitees representing banks and research institutions.

The working group on MicroATM standards & Central Infrastructure & Connectivity has submitted its report to RBI. As a part of the working group it was proposed to conduct a Lab level Proof of concept (PoC), integrating the authentication & encryption standards of UIDAI, to test the efficacy of MicroATM standards and transactions using Aadhaar before they are put to actual use. The PoC was successfully demonstrated at various venues.

AEPS is a bank led model which allows online interoperable financial inclusion transaction at PoS (MicroATM) through the Business correspondent of any bank using the Aadhaar authentication.

The four Aadhaar enabled basic types of banking transactions are as follows:-

  • Balance Enquiry
  • Cash Withdrawal
  • Cash Deposit
  • Aadhaar to Aadhaar Funds Transfer

The only inputs required for a customer to do a transaction under this scenario are:-

IIN (Identifying the Bank to which the customer is associated)
Aadhaar Number
Fingerprint captured during their enrollment

 

From RUPAY from NPCI website

The National Payments Corporation of India (NPCI) is a pioneer organization in the field of retail payments in India. It is a body promoted by RBI and has presently ten core promoter banks (State Bank of India, Punjab National Bank, Canara Bank, Bank of Baroda, Union bank of India, Bank of India, ICICI Bank, HDFC Bank, Citibank and HSBC). It has been incorporated as a Section 25 company under Companies Act and is aimed to operate for the benefit of all the member banks and their customers.

The vision of NPCI being able to provide citizens of our country anytime, anywhere payment services which are simple, easy to use, safe, and secure, fast and also cost effective. NPCI aims to operate for the benefit of all the member banks and the common man at large.

Reserve Bank of India, after setting up of the Board for Payment and Settlement Systems in 2005 released a vision document incorporating a proposal to set up an umbrella institution for all the Retail Payment Systems in the country. The core objective was to consolidate and integrate the multiple systems with varying service levels into nation-wide uniform and standard business process for all retail payment systems. This led to the formation of National Payments Corporation of India, (NPCI).
RuPay, a new card payment scheme launched by the National Payments Corporation of India (NPCI), has been conceived to fulfill RBI’s vision to offer a domestic, open-loop, multilateral system which will allow all Indian banks and financial institutions in India to participate in electronic payments.

“RuPay”, the word itself has a sense of nationality in it. “RuPay” is the coinage of two terms Rupee and Payment. The RuPay Visual Identity is a modern and dynamic unit. The orange and green arrows indicate a nation on the move and a service that matches its pace. The color blue stands for the feeling of tranquility which is the people must get while owning a card of the brand ‘RuPay’. The bold and unique typeface grants solidity to the whole unit and symbolizes a stable entity.

 

From ICICI Bank Website

The IMPS (Immediate Payment Service)

from ICICI Bank helps you access your bank account and transfer funds instantly and securely. You can send money using ICICI Netbanking on an internet-powered laptop or PC. We enable you to transfer funds from your ICICI account to any ICICI or non-ICICI account. The beneficiary account is credited immediately when a fund transfer request is made from your side.

This service is available 24×7, throughout the year including Sundays and any bank holiday.

Use IMPS service to transfer funds anytime, from anywhere using: Netbanking, Imobile, and M.DOT

What is RTGS ?

The acronym ‘RTGS’ stands for Real Time Gross Settlement, which can be defined as the continuous (real-time) settlement of funds individually on an order by order basis (without netting). ‘Real Time’ means the processing of instructions at the time they are received rather than at some later time.’Gross Settlement’ means the settlement of funds transfer instructions occurs individually (on an instruction by instruction basis). Considering that the funds settlement takes place in the books of the Reserve Bank of India, the payments are final and irrevocable.

What is NEFT?

National Electronic Funds Transfer (NEFT) is a nation-wide payment system facilitating one-to-one funds transfer. Under this Scheme, individuals can electronically transfer funds from any bank branch to any individual having an account with any other bank branch in the country participating in the Scheme.

Use NEFT service to transfer funds anywhere using the following modes:

  • Internet Banking
  • iMobile
  • m.dot
  • Pockets
  • icicibankpay

Unified Payment Interface  (UPI) is here

Discover a quick and easy way to send and receive money using a Virtual Payment Address (VPA) without entering additional bank information.

 

From Ezetap ties-up with SBI to launch PoS and ATM solution Chota ATM

Ezetap ties-up with SBI to launch PoS and ATM solution Chota ATM

Vivek Pai October 6, 2014
Ezetap SBIBangalore-based point of sale (PoS) startup Ezetap has partnered with the State Bank of India to launch ‘Chota ATM’, a solution that can double as an ATM device as well as a PoS terminal that can accept payments from any debit and credit card.

Targeted at neighborhood Kirana shops, the solution will be offered to merchants for a non-refundable deposit of Rs 499 along with a monthly fee of Rs 150 and a commission of Rs 5 per cash-back transaction.

Sanjay Swamy, Managing partner of AngelPrime (which incubated Ezetap) writes that merchants can sign up for this service by opening a zero balance current account with SBI and use this solution over an Android or Windows phone or tablet with an active data connection.

It’s worth noting that SBI had earlier selected Ezetap to deploy 500,000 PoS terminals in the next 5 years for the customers of SBI and its five associate banks.

Cash Withdrawal limits & commission

Ezetap Chota ATM
Through this solution, credit and debit card holders can swipe their card to carry out three types of transactions – Sale, Sale + Cash withdrawal and Cash withdrawal only.

As per SBI’s Chhota ATM FAQs (pdf), cash can be withdrawn in multiples of Rs 100. There is a minimum daily withdrawal limit of Rs 100 per card holder and a maximum daily limit of Rs 1,000 per card holder, in line with the RBI guidelines.

There is also an additional 1% charge on customers having State Bank group debit cards to a minimum of Rs.7.50 and maximum of Rs 10 per transaction. For other bank holders, this charge will be decided by their respective banks. As for merchants, they will receive a commission of Rs 5 per cash withdrawal transaction.

Other developments

In January last year, Ezetap had partnered with Citibank to launch a mobile payment solution for merchants targeting credit and debit card holders in India. As part of the partnership, merchants were expected to receive real time information during the payment and collection process, when customers transact using Ezetap. Citibank had then claimed to have partnered with companies like Shoppers Stop, Bajaj Allianz, Flipkart, BookMyShow and Vodafone to deploy this solution for payment and collection.

The company had also launched a debit card supporting mobile PoS solution in July last year and had acquired Hyderabad-based loyalty platform Clinknow in June this year to launch an integrated payments and loyalty solution for merchants across India.

Ezetap has raised around three rounds of investments until now – a strategic undisclosed investment from American Express in March this year, a $8 million investment in Series B funding led by Helion Advisors with participation from existing investors Chamath Palihapitiya’s The Social+Capital Partnership and Berggruen Holdings in February this year and $3.5 million in series A funding from Peter Thiel, Chamath Palihapitiya, Nicolas Berggruen and David Sacks in November 2011.

(With Inputs from Vikas SN)

 

India POS Devices

All three major POS devices providers in USA have business offices in India.  Their business has boomed since demonitization was announced in November 2016.  But there is shortage of these devices in India.  On Feb 1, 2017, Government slashed import duties on POS devices.  But procurement times are several months long.  Devices are manufactured in China.

  • VeriFone
  • FirstData
  • Ingenico

There are other manufacturers in Asia who provide POS devices.

  • PAX Technology (China)
  • SZZT Electronics (China)
  • Fujian Newland (China)
  • CyberNet (South Korea)
  • Bitel (South Korea)
  • Shenzhen Xinguodu (China)
  • Castles Technology (Taiwan)
  • New POS Technology (China)

 

There are other devices which are required for a complete solution.  There are:

  • POS Terminal (CPU)
  • Barcode Scanners
  • Data Collection Devices
  • Handheld Devices
  • Mobile Computer
  • Receipt Printers
  • Bar Code Printers
  • Cash Drawers
  • Monitors
  • Check Readers
  • Keyboards
  • Touch Screens
  • Biometrics
  • Signature Capture Device
  • Payment Terminals

 

India m-POS Devices

EZEPAY has linked with State Bank of India to bring Micro ATM solution to get cash from POS devices.  In USA, this service is known as Get Cashback option in all POS devices at the merchants.  Another Mini ATM solution is from Oxigen known as OxiShaan. SBI has tied with Oxigen to provide miniATM solution known as MobiCash. Oxigen has a business correspondent relationship with SBI.

  • mSwipe Wisepad
  • Ezetap
  • MRL Posnet PayTivo
  • Mosambee
  • Paymate India PayPos
  • Ikaaz
  • Mobi Swipe (Ingenico)
  • EasyPos
  • Essae (hardware)
  • PayUMoney Pos
  • Oxigen OxiShaan
  • MTS mPos
  • Paynear One
  • CirQ Pos
  • ePaisa
  • BijliPay
  • HDFC PayZapp
  • Pine Labs
  • SBI MAB Pos
  • ICICI MBS MPos
  • Union Bank of India POS
  • Axis Bank
  • Ezee Pay

 

 

China Networks

PBOC and Union Pay control following networks:

  • nationwide inter-bank system  (the existing EIS will be replaced by the next-generation CNAPS)
  • regional (cities and counties) payment systems (LCHS)
  • commercial banks’ intra-bank payment systems.
  • Internet Banking Payment System (IBPS)
  • Interbank Bankcard Transaction Clearing System (IBTCS) – Union Pay

 

From Chapter 2: Payment Systems of China

The China National Advanced Payment System (CNAPS) is composed of the High-Value Payment System (HVPS), the Bulk-Entry Payment System (BEPS), and the Settlement Account Processing System (SAPS).

HVPS is an RTGS that performs real-time processing of large-value funds on a gross amount basis, and has the same functions as Bank of Japan’s financial network system (BOJ-NET).

BEPS is for small-value funds, with daily netting night batch processing, and has the same function as Data Telecommunication System of All Banks in Japan.

SAPS is the system for common operations related to settlement accounts, including receipt and payment of money, settlement of LCHS, and management of overdraft limits. Although such a SAPS function makes up a part of the entire payment system in many other countries, CNAPS uses each of them independently.

Local Clearing House System

The Local Clearing House System (LCHS) is for local payments related to exchange, bill, and check transactions within the same region (cities and counties). There are approximately 2,300 clearing houses throughout the country, and although most LCHS sites are owned and managed by PBC, some are jointly owned by participants. All receipts and payments of funds on a written basis are cleared and settled via LCHS.

Commercial Banks’ Intra-office Payment Systems

China’s four largest banks have the most extensive centralization and integration hardware and software, on which each spends RMB1–3 billion annually, in their efforts to consolidate computer service centers and improve nationwide networks. If a credit remittance is performed within the same bank, it can process the transaction within approximately 24 hours. Although these banks can carry out payments within two or three hours, based on priority-processing agreements for such transactions as urgent large-amount securities settlements, the determination of priority order still often requires manual processing. Large private banks—such as Minsheng Bank of China and Shanghai Pudong Development Bank—have focused on systems investment, made efforts to centralize data on customers who are subject to international standards, and have focused on Internet banking services to make up for a lack of branches. Most banks’ customer account databases are still dispersed, and real-time processing is not possible. Databases should be combined in host centers.

National Interbank System

The National Interbank System (NIS) conducts manual inter-bank payments between distant places. After a payment instruction, either cabled or written, is sent by a sending bank directly to a receiving bank, daily netting is performed for funds payment and the final balance of payment. At each stage, notification of payments between correspondent banks are cabled and completed between PBC branches. After all crediting data are sent to NIS’s computer center and inspected there, checking sheets are sent to the sending and receiving banks. NIS’s status has decreased.

 

Non Bank Payment Networks

  • Alipay
  • Tencent Tenpay
  • Baidu

 

 

 

Key Sources of Research:

 

A Guide to Debit and ATM Card Industry

Fumiko Hayashi Richard Sullivan Stuart E. Weiner

Federal Reserve of Kansas City

2003

Click to access ATMpaper.pdf

 

Mobile Payments in the United States at Retail Point of Sale: Current Market and Future Prospects

Marianne Crowe, Marc Rysman, and Joanna Stavins

Public Policy Discussion Papers.

Federal Reserve Bank of Boston 10:2 (2010)

 

 

Competing Technologies for Payments: ATMs, POS Terminals and the Demand for Currency

Santiago Carbó-Valverde

Francisco Rodríguez-Fernández

 

 

Point of Sale (POS) Systems and Security

 

https://www.sans.org/reading-room/whitepapers/bestprac/point-sale-pos-systems-security-35357

 

 

NON-BANKS AND RETAIL PAYMENTS: INNOVATIONS IN CHINA AND THE UNITED STATES

BY NICHOLAS BORST

Federal Reserve SF

2015

 

 

MSwipe

http://www.mswipe.com

 

 

Best Retail POS Software | Point Of Sale Software in 2017

https://www.softwaresuggest.com/point-of-sale-pos-software

 

 

SaralPos

http://www.saralpos.com

 

 

Epaisa

http://us.epaisa.com

 

 

EasyPos

http://www.easypos.in

 

 

Cards, ATMs, POS will be redundant by 2020 in India, says Niti Aayog CEO

http://indiatoday.intoday.in/story/cards-atms-pos-niti-aayog-redundant-2020-india-amitabh-kant/1/852018.html

 

 

Essae

http://www.essae.com/pos-system

 

 

DucePos

http://www.ducepos.com

 

 

‘India needs 20 m point of sale terminals’

http://www.thehindu.com/business/Industry/india-needs-20-m-point-of-sale-terminals/article8018793.ece

 

 

Innovative payment systems for financial inclusion

EY

http://www.ey.com/in/en/newsroom/news-releases/ey-press-release-innovative-payment-systems-for-financial-inclusion

 

 

Concept Paper on Card Acceptance Infrastructure

RBI

 

Click to access MDRDBEDA36AB77C4C81A3951C4679DAE68F.PDF

 

 

RBI concept paper looks to boost card payments at POS terminals

http://www.medianama.com/2016/03/223-rbi-concept-paper-looks-to-boost-card-payments-at-pos-terminals-in-the-country/

 

 

Update: Card payments on POS terminals suffered outages and failures over the weekend

By Shashidhar KJ ( @KJshashi )

on November 14, 2016

http://www.medianama.com/2016/11/223-pos-terminals-demonetization/

 

 

Why it is difficult to scale POS machines in India

By Shashidhar KJ ( @KJshashi )

on October 19, 2016

http://www.medianama.com/2016/10/223-pos-editorial-scaling-india/

 

 

Paytm has more offline merchant transactions than online: CEO Vijay Shekhar Sharma

By Shashidhar KJ ( @KJshashi )

on September 26, 2016

http://www.medianama.com/2016/09/223-paytm-offline-merchants-vss/

 

 

Veriphone

https://www.verifone.com

 

 

Ingenico

https://payment-services.ingenico.com/in/en/online-payment-services-solutions/multi-channel/point-of-sales-payment-terminals

 

 

Paytm Has Just Created Millions Of PoS Across India With A Single Move; Every Paytm User Can Now Accept Card Based Payments

http://trak.in/tags/business/2016/11/23/paytm-million-pos-card-based-payments/

 

 

SBI’s ‘Chota ATM’ Costing $8 Coming To Every Nook & Corner Of India

http://trak.in/tags/business/2014/10/07/sbi-chota-atm-ezetap/

 

 

Ezetap ties-up with SBI to launch PoS and ATM solution Chota ATM

By Vivek Pai on October 6, 2014

http://www.medianama.com/2014/10/223-ezetap-sbi-chota-atm/

 

 

CASH@POS by State Bank of India (SBI)

Click to access SBI%20Cash@POS.pdf

 

 

Oxigen Launches Mini ATM & Mobile PoS Device OxiShaan

By Apurva Chaudhary

on September 14, 2012

http://www.medianama.com/2012/09/223-oxigen-launches-mini-atm-mobile-pos-device-oxishaan/

 

 

Introduction of Chhota ATM: Evolution of the Financial Inclusion Programme

http://thestoryjunction.com/introduction-chhota-atm-evolution-financial-inclusion-programme/

 

 

National Financial Switch

NPCI

https://en.wikipedia.org/wiki/National_Financial_Switch

 

 

VARIOUS MODES OF ELECTRONIC FUND TRANSFERS

http://www.itsallaboutmoney.com/convenience-banking/internet-banking/various-modes-of-electronic-fundstransfers-in-india-neft-rtgs-and-imps/Structure

 

 

List of mPOS Machine & Solution Providers in India – How to buy one?

http://www.iamwire.com/2016/12/mpos-india-machine-solution-providers/146049

 

 

Indian Payments Industry: Mobile POS Solutions

 

Click to access IE%20Insight%20-%20India%20Payments%20-%20Mobile%20POS%20Solutions.pdf

 

 

More Info on POS Hardware options – A USA based company

http://www.datamaxsys.com

 

 

Risk Management and Nonbank Participation in the U.S. Retail Payments System

By Richard J. Sullivan

 

Click to access 2q07sull.pdf

 

 

Non-banks in retail payments

September 2014

Click to access d118.pdf

 

 

Payment, clearing and settlement systems in the United States

Click to access d105_us.pdf

 

 

Payment, clearing and settlement systems in China

Click to access d105_cn.pdf

 

 

Chapter 2: Payment Systems of China

 

Click to access PaymentSystemsOfChina.pdf

 

 

Development of Retail Payment Services in China

CHEN Xue

 

Click to access Xue_Day2_final.pdf

 

 

 

Payment, clearing and settlement systems in India

Click to access d97_in.pdf

 

 

Payment Systems in India: Opportunities and Challenges

DEEPANKAR ROY

 

Click to access payment-systems-in-india-opportunities-and-challenges.pdf

 

 

Assessment of the Payment System

With respect to Inclusiveness towards Small Remittances

 

Click to access Assessment%20of%20the%20Payment%20Systems_2011.pdf

 

Next Generation of B2C Retail Payment Systems

Next Generation of B2C Retail Payment Systems

 

Before advent of Web and Mobile based applications, people use the following for making payments for retail expenses.

  • Cash
  • Cheques
  • Money Orders
  • Credit and Debit Cards
  • ACH Transactions

 

After 1st generation of online commerce, payments, and banking websites, mobile solutions are leap frogging  the web apps particularly in developing countries to help people at bottom of the wealth pyramid who may not have computers but have smartphones.

 

Ist Gen:  e-commerce, e-payments, e-banking

  • Online commerce sites such as Amazon, eBay
  • Online payments such as Paypal
  • Online Banking at various Banks websites such as Wells Fargo
  • Magnetic Card readers and EMV Chip card readers

 

There are these networks around the globe for small value retail payments.  UnionPay in China and RuPay in India are now directly competing with other well established providers such as MasterCard and Visa.  The main motive is financial inclusion of unbanked people.

Debit Cards /Credit Cards (Small Value Retail Payment Systems) Networks

  • Mastercard
  • Visa
  • American Express
  • Discover
  • RuPay (India)
  • Union Pay (China)

 

2nd Gen: m-commerce, m-payments, m-banking, m-pos, m-transfer

USA and Other Countries (Excluding China and India)

m-payment Apps

  • Google Wallet
  • Apple Passbook
  • Android Pay
  • Samsung Pay
  • Apple Pay
  • Chase Pay
  • Citi Pay
  • Microsoft Wallet
  • Lemon Wallet
  • Square Wallet
  • Isis
  • Chirpify
  • Geode
  • Paypal Venmo

 

There are several solutions worth mentioning which do not yet fit in any broad categories.

Other solutions

  • Adyen (Amsterdam)
  • Tipalti
  • Razorpay (India/USA)
  • Boku
  • Poynt (USA)
  • Klarna (Stockholm)
  • Gocardless (London)

 

Chat/SMS based payment solutions are very popular in China and now being integrated in applications such as Facebook.

Chat based Payments

  • Tencent Wechat (China)
  • Facebook
  • Snapchat
  • Vodaphone M-PESA (SMS based)

 

There are newer Proximity based payments solutions using two technologies – BLE and NFC.  There are now several solutions based on each of these technologies.

Proximity Payments (No Contact)

A.  Payment solutions powered by iBeacon technology (Bluetooth Low Energy)

  • Powatag
  • Paij
  • PassMarket
  • TruBeacon
  • Labwerk

B.  NFC powered Payment Solutions

  • Apple Pay
  • Android Pay
  • Google Wallet
  • Moneto
  • Mastercard Paypass
  • Visa Pay Wave
  • ISIS
  • Quick Tap (UK)
  • Girogo (Germany)
  • Sure Tap (Canada)
  • Touch2Pay (New zealand)
  • CardMobile (Austria)
  • PayBox (Austria)
  • T-Money (South Korea)
  • Suica (Japan)
  • PASMO (Japan)
  • MTS (Russia)
  • Cep-T Cuzdan (Turkey)

 

m-POS apps using scanning hardware for reading of credit/debit cards of customers at businesses is a popular service provided.  Square leads the pack.

Mobile Card Readers (m-POS)

  • Square
  • Cartwheel Register
  • EMS+
  • Spark Pay
  • Flagship ROAMpay
  • Elavon
  • Creditcardprocessing.com
  • Moolah
  • Flint
  • Paypal Here
  • Chase Paymenttech
  • Yowza Merchant
  • Cayan
  • PayAnywhere
  • CDGCommerce
  • Quickbooks Gopayment

 

There are now several companies which offer money transfer service to accounts across the globe.

Overseas Money Transfer

  • Transferwise
  • Western Union
  • World Remit
  • Paypal Xoom
  • MoneyGram
  • Square Cash
  • Azimo Money Transfer

 

 

India

Mobile Payment applications have mushroomed in India.  India is on leading edge in providing real time mobile payment system available 24/7.  Some of the services providers have been given licensed to start Payment Banks dedicated to payment operations as opposed to Deposit Banks.

Mobile Payments

  • Paytm
  • PhonePe
  • Snapdeal Freecharge
  • MobiKwik
  • AirTel Money
  • BHIM
  • Oxigen
  • ICICI Easypay
  • Flipkart Money
  • DBS Rupizo
  • Micromax Udio
  • Payzapp
  • Citrus
  • ICICI Pockets
  • Bookmyshow
  • Ola Money
  • DBS Wallet
  • Jio money
  • Amazon Emvantage
  • PayUMoney
  • Vodaphone M Pesa
  • ItzCash
  • Trupay

 

There are many applications introduced by Banks who provide access to users accounts on a smartphone.  Some of them are listed below.

Mobile Banking

  • ICICI Bank imobile
  • State Bank of India Anywhere
  • HDFC Bank
  • Bank of Baroda mPassbook
  • PNB mBanking
  • Indian Bank Indpay
  • Kotak Mahindra Bank
  • Yes Bank
  • Axis Bank

 

In 2016, ICICI Bank introduced first NFC based mobile app in India.

NFC based m-payment solutions

  • ICICI Bank Pockets

 

 

There are several retailers who have introduced Mobile apps for payments.  Some of them are listed below.

 

Specialized Retail Payment Apps

  • Zomato (India)
  • Starbucks (USA)
  • Walmart Pay (USA)
  • Dunkin Donuts (USA)
  • Taco Bell (USA)
  • CVS Pay (USA)
  • Kohl Pay (USA)
  • Amazon Payment (USA)

 

Here is a list of Online Payment Solutions.

On-line Payment Solutions

  • 2CheckOut
  • Stripe
  • ACH Payments
  • WePay
  • Authorize.Net
  • Dwolla
  • Paypal

 

 

China

China has large population of smartphone users who do use m-payment apps such as Alipay regularly.  Many others are trying to get a foothold in this market with partnerships with Chinese UnionPay.

m-payment

  •  China UnionPay (CUP) Cloud Quick Pass
  • Alibaba Alipay
  • Tencent Wechat
  • Tencent TenPay
  • China Mobile
  • China Unicom
  • 99Bill
  • YeePay
  • Paypal
  • Lakala
  • LianlianPay
  • Ping An Pay
  • PayEase

 

NFC based m-payment

  • Apple Pay (CUP)
  • Samsung Pay (CUP)
  • Huawei
  • Xiaomi (CUP)
  • LG

 

 

Key Sources of Research:

 

Top 10 Trends in Payments in 2016

Capgemini

 

Click to access payments_trends_2016.pdf

 

 

Cashless Payment System in India- A Roadmap

Ashish Das, and Rakhi Agarwal

2010

 

Click to access PaymentCardAugust31.pdf

 

 

Fast Retail Payment Systems

Stephanie Bolt, David Emery and Paul Harrigan

2014

 

Click to access bu-1214-6.pdf

 

 

Report of the Key Advisory Group on the Payment Systems in India (KAG on PSI)

31st May, 2012

 

Click to access Report%20of%20KAG%20on%20PSI.pdf

 

 

NEFT, RTGS, UPI: What should you use to transfer money?

http://www.4-traders.com/DCB-BANK-LTD-9059622/news/NEFT-RTGS-UPI-What-should-you-use-to-transfer-money-23784479/

 

 

Meet the top 20 hottest payment companies

http://www.raconteur.net/technology/meet-the-hottest-payment-companies